Is Microsoft Re-org A Step Forward?

The past 24 hours have had some interesting news that impacts the PC world. First, there is a piece on All Things D about the decline of PC sales in the previous quarter. Then, we have a serious of pieces, again from All Things D, that outline the latest Microsoft re-organization, some thoughts on if there is an “heir apparent” to Ballmer. While the Microsoft org chart shuffling isn’t strictly about PC’s, it is clear (to me at least) that it is motivated by the impact that PC’s will have on the company, and how the shift to cloud and mobile computing is leaving them behind in some ways.

(Update: it appears that JLG at The Monday Note holds similar views to me on this)

Org Chart Should Be Familiar (Sort Of)

The new organization of the company should be familiar for two reasons. First, all of the faces are existing MS executives, just with different responsibilities. Bigger than that, though, is how it sort-of mirrors Apple’s organization. The Microsoft organization is still a bit complex in my mind, and has just shifted the silos in some ways. But it is closer to what Apple runs today.

Consider Apple’s basic structure: they have software, internet, hardware, sales & marketing and technologies (plus the usual corporate elements). Over all of this is Jony Ive and Tim Cook, providing for continuity and consistency between the groups. Microsoft has taken a similar approach, but with some differences. Software is spread around into 4 different groups, depending on the role. They are “Operating Systems”, “Cloud and Enterprise”,  “Applications and Services” and, inexplicably, “Devices and Studios”. I get the first three. The last makes no sense in my mind.

Devices and Studios? Wha…..?

Putting all of the hardware into one group makes complete sense. I get that. The fact that it was separate for this long made zero sense to me. But games, multimedia tools and such are also in the same group. Seriously? What on earth do they have to do with the design and development of the hardware? If anything, the operating systems team should be part and parcel of the hardware team, given that their pieces have to work closely together. This division of labour sounds more like “workload balancing” so each executive gets a team of approximately similar size, not because some of the groups make any real sense.

Personally, I think Microsoft split the groups into too fine a distinction, and the result is a set of new silos. Me? I would have gone simpler: core software, hardware, enterprise, internet services, sales & marketing plus the usual corporate groups. Core software would have included operating systems, games, multimedia tools, developer tools and most of the application software. Enterprise would be the enterprise services, including Azure, Exchange, Sharepoint, etc., as well as enterprise integration services. The hardware is pretty straightforward. Internet services would include Bing, MSN, on-line communities (for Xbox) and the app and content stores. Then, over all of this, I would have put a CTO whose job it is to make sure that everyone rows in the same direction.

Will Politics Trump Survival?

While the financials may not show it, Microsoft is in trouble. PC sales are down, and appear to be on a downward trajectory for the next few years. Windows Phone has basically failed, and Microsoft’s hope to enter (and possibly dominate) the tablet space is faltering. Games and the Xbox are one of the few good things Microsoft has got going, but their recently stumbling and bumbling with the Xbox One does not inspire confidence. Besides, the game market is a fickle mistress, governed as much by fashion as it is by rationality. The Playstation 2 looked unassailable in 2005, but the Wii and Xbox 360 managed to unseat Sony from the game console throne. A hit in one generation of console doesn’t guarantee success in the next round.

Like any sufficiently large organization, Microsoft is influenced by internal politics. They aren’t alone, but it certainly seems to be more publicly prominent than in most other companies. The question is: will the current group of executives, most of whom now have different jobs to varying degrees, find a way to get along and work together? As Kara Swisher points out, there isn’t an heir apparent to Steve Ballmer, and Mr. Ballmer may be fast running out of at-bats as head of the company. The shareholders of the company may be running out of patience. Given that mutual funds and other institutional shareholders control about 70% of the company, Ballmer has nowhere to hide. Bill Gates only owns about 5% of the company, not enough to have a meaningful influence on a shareholder vote. The rest are funds of various forms that want results and stability. They want good news, not bad.

With no obvious candidate to take over the top job, one possible outcome is a group of newly-reorganized executives squabbling for the top job. They won’t necessarily undermine each other overtly, but I could see a degree of backbiting and other shenanigans in an attempt to rise above the mob. Again, it may not be such that it obviously harms the company, but it could be enough that subtle damage will become evident over time. I’m not convinced that this reorganization is going to have the impact that Ballmer hopes it will have (and outlines in his memo). I get the sentiment he is trying to convey, and the goal he is trying to reach. There has never really been a “One Microsoft” since the vey early days of the company. It makes sense that Microsoft reorganize themselves, because the undercurrent in memo is clear: it isn’t about any single device, platform or technology anymore. I believe that the motives and the philosophy are correct.

But there are still too many divisions, and some of what is lumped into a group doesn’t make sense. Couple this with a large band of executives, some of which may be eying the top job, and you have the potential for underwhelming results. I don’t believe this will end in disaster. The company is more resilient than that. But I do expect a few tears to be shed before it is all over, and the next reorganization under a new CEO occurs.

Company In Transition

As personal and enterprise computing is seeing a transition, so is Microsoft. Fortunately for them, they have started sooner rather than later. Sure, they could have tried to shake things up earlier, and this is the second go at changing the corporate structure. The bigger challenge, though, is shaking up the corporate culture, something that is also needed but that is far harder to accomplish. And history isn’t helping them any.

Let’s face it, for the better part of 2 decades, Microsoft faced no effective competition on the desktop. In the past 15 years, they have managed to make themselves in important part of the datacentre. Microsoft got lucky in some ways, when IBM selected their operating system over CP/M back in 1980 (to be ready for the 1981 launch). Why? Because for all that we called them “personal computers”, the reality is that they were enterprise machines a decade or more before they became “personal” in the sense that a “person” owned them. While “personal computers” first arose in the mid-1970’s, it took official blessing from IBM  to make them a truly corporate device, and everything unfolded from there. By the late 1980’s and early 1990’s, it was clear Microsoft was the dominant player in the market. More than that, they were deeply entrenched and would be virtually impossible to displace easily. The release of Windows 95, and the explosion of personal computers in the home in the 1990’s cemented that position.

Internally, though, Microsoft acted as if their dominant position would be unwound at any moment. I worked as a contractor briefly in the early 1990’s, and it was very much a “take no prisoners or we’re doomed” mindset inside the company. The fact that there were no truly viable competitors to Windows or Office didn’t matter. Apple and the Macintosh struggled, and never had the software base to appeal to the broader community. Linux never stood a chance, because it was never going to have Microsoft Office, let alone the catalog of other software people depended on.

Virtually everyone used Office, and few were willing to risk using “compatible” versions like Star Office (mainly because they didn’t work very well at the time). Sun’s futile attempt to build a PC/Windows/Office alternative was money down the drain, and I think contributed in a small way to their demise. Their single-minded focus on “beat Microsoft” had them take their eye off the ball on servers just enough that it left openings for others to drive them down.

Hanging On To The Past?

However, for Microsoft, they had a single goal internally: keep the PC at the top of the computing food chain. It pervaded everything that I saw when I was there, and I believe it still is a pervasive influence on everything and everyone except the Xbox group. Virtually everything Microsoft has done has been to keep the PC at the centre of everything, and treat everything else as either supporting infrastructure, or glorified accessories to the machine. Their Internet services? They still depend heavily on a browser running a on a full-on PC, and it works best inside a Microsoft browser and Windows. Windows Phone? It really works better alongside a Windows PC. Their tablets and Windows 8? An attempt to make a tablet “just another PC”, ignoring the unique challenges and new possibilities that a tablet offers that a desktop or laptop simply can’t (and shouldn’t try to) match. Ultimately, the mindset gets burned in deep, and becomes a core part of the cultural fabric. It was a mindset that was years in the making.

Worse, their entire ecosystem ignores the incumbents. Windows tablets and phones aren’t the dominant players in the mobile computing world, and the odds they’ll get there are fast approaching zero. So, do we see useful integration with iPhones, iPads and Android? Sort of, with the new Office app for iPhone (but not iPad). The app is a half-measure though, more suited to viewing and display rather than editing, although on a phone this isn’t a surprising approach. But the new app aside, it’s as if the iPad and Android don’t really exist. Again, this doesn’t come as a surprise, given how ingrained the “PC First” mentality is with the corporate culture.

The Reorg Is the Right Idea

This latest reorganization, and Ballmer’s “One Microsoft” philosophy are a first step to try to break that line of thinking. But reorganizing the structure doesn’t mean a change in mindset will follow along with it. I spent a few years inside Bell-Northern Research and Nortel, and we would get one of these types of re-orgs and attempts at a philosophical change from time to time. It had little or no effect on what we did day to day, and a lot of it was more theatre and performance, and less about substance. In a big enough company, cultural change is hard.

It can be done, though. IBM managed to do it. The IBM before Lou Gerstner was a very different company than the one after he took the helm. Some of it was about the surface, such as ditching the blue suits and formal approaches to day-to-day activities. But some of the “mainframe first, last and always” attitude was also readjusted. Gerstner made it pretty clear things were going to change radically, when he shows up for his first day of work in khakis and a flannel shirt. Had any previous IBM CEO tried it, the act would likely have been seen as insincere. It took an outsider to shake things up, and to break some long-held habits and beliefs.

Microsoft may find that the only way to shake things up is to make a change at the very top. This re-organization is certainly a step in the right direction, but that journey isn’t complete, and I suspect we’ll see some more shuffling over the next year or so. If they are to survive, I expect to see some simplification, and seriously, I think it’s time for Ballmer to go. Not because he isn’t doing a good job (although he arguably isn’t doing a good job). It is because a massive cultural shift starts with a new captain. A reorganization and a re-statement of what should be seen as core philosophy is a first step. But it has to be done convincingly, and done from the top. Any wavering from that position dilutes the message and undermines the goal, and Ballmer has been immersed in the culture so for long that change may be hard for him too. He has the right intention. I’m just not sure he is the one that can pull it off.