Commentary

Microsoft Blows Up Its Silos; Ballmer Reigns Supreme

Microsoft, where by most accounts the departmental silos have long resembled Russian nesting dolls, announced a sweeping plan to reorganize yesterday. The intent of what CEO Steve Ballmer calls “One Microsoft” is to “break down internal fiefs that have slowed product development and caused friction among teams of employees,” Shira Ovide and Don Clark write in the Wall Street Journal

The consolidation of eight product divisions into four and the centralization of functions such as marketing “also appears to reinforce the control” of Ballmer, they observe, ”without clarifying who is his No. 2.”

Nick Wingfield’s lede in the New York Times is telling: A couple of years ago, a satirical set of diagrams depicting the organization of Amazon, Apple, Facebook and other technology companies made the rounds on the Internet, he writes. “The chart for Microsoft showed several isolated pyramids representing its divisions, each with a cartoon pistol aimed at the other.”

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During a webcast with reporters and analysts tracked by MarketWatch, Ballmer said, “We need to move forward as one Microsoft,” adding that its five core values are that the newest version of Microsoft “will be nimble, communicative, collaborative, decisive and motivated.” Ballmer also conducted a town hall meeting with employees; audio and video highlights are excerpted on the company website.

“This is a big undertaking,” Ballmer wrote in an email to employees that’s time stamped 6 a.m., as if he had been crunching the fine points through the wee hours. “It touches nearly every piece of what we do and how we work. It changes our org structure, the way we collaborate, how we allocate resources, how we best empower our engineers and how we market.”

The gist of the reorganization is to get the more than 100,000 employees “rallying behind a single strategy as one company -- not a collection of divisional strategies,” Ballmer said. A separate memo, titled “Transforming Our Company,” further elaborates on the new strategy, acknowledging that “as devices proliferate, it has become clearer that consumers crave one experience across all of their technology.”

In terms of product, that means “Microsoft has the clear opportunity to offer consumers a unified experience across all aspects of their life, whether the screen is a small wearable, a phone, a tablet, an 85-inch display or other screens and devices we have not yet even imagined,” Ballmer writes.

“This is, in my mind, the biggest thing we’ve ever done,” HR head Lisa Brummel, who has been with the company 24 years, tells the Times’ Wingfield.

Among the duties outlined in Ballmer’s email: “Tami Reller will lead all marketing with the field relationship as is today [sic, which is what happens when you write in the wee hours]. Mark Penn will take a broad view of marketing strategy and will lead with Tami the newly centralized advertising and media functions.”

The message of a more holistic product line may not be new, as Byron Acohido observes in USA Today, “but the urgency has intensified” because “Microsoft is sweating its lost market share,” as Karl Volkman, CTO at consultancy SRV Network, tells him. “Microsoft does own the business computing environment. However, since personal computers are no longer the gadget of choice for the consumer market, Microsoft is floundering there.”

“In theory, it’s a great idea. The key question will be can Ballmer deliver this new model and can it be successful,” Channing Smith, co-manager of the Capital Advisors Growth Fund, tells Reuters’ Alexei Oreskovic. “With his track record, it will be a question mark for investors going forward.”

Investors yesterday “greeted the reorganization kindly, boosting the share price 99 cents to close at $35.69 Thursday,” the Seattle Times’ Janet I. Tu reports. A sidebar to Tu’s story concisely breaks out the responsibilities of the engineers leading the four divisions, the duties of five operations leaders including Reller and Penn, and other changes.

“This is a good thing for investors. This is about them being the company they could be,” Gartner analyst Carolina Milanesi tells CNBC’s Cadie Thompson. “Microsoft has all these ingredients to make a wonderful dish, but it’s still coming out unseasoned and not as tasty as it could be."

“Steve Ballmer’s grand plan to reinvent Microsoft has garnered mixed reviews from industry analysts, ranging from enthusiastic endorsements to frowning skepticism,” PCWorld’s Juan Carlos Perez reports. “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.”

Kelly Clay, writing in Forbes, suggests “some Microsoft products may get left in the dust” of the re-org -- specifically Skype, which is losing traffic, and Bing, a distant No. 2 to Google in search. 

Fortune’s JP Mangalindan makes the larger point that changing the culture at Microsoft will be a much tougher task than redrawing the organizational chart.

“The re-org will not change the way they behave and act because it's been years and years of doing business in a different way,” Randy Ottinger, EVP of the executive leadership strategy firm Kotter International tells Mangalindan.

In other words, you can take the Russian dolls out of their nests, but they are still Russian dolls.

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