Why Microsoft's Reorganization Is the End of An Era

There were lots of references to that old saw about rearranging the deck chairs on the Titanic when Microsoft announced its most recent reorganization.

But that may not be fair to either Microsoft or to the memory of the once mighty ocean liner.

The Titanic was state of the art. It personified the reality and the potential for power in its era. No one has said that about Microsoft for a long time. But what this reorganization does is send some signals, however indistinct.

The first is that the company, after years of bluster, has acknowledged that it is searching for a better way forward. Not that it is lost or directionless or headed in the wrong direction, but that it needs an optimal direction and is determined to identify it. That is quite different from management trumpeting the latest acquisition as The answer or refusing to acknowledge that things could be better. As a general rule, improvement only begins when admission of a major problem is made public.

Secondly, the era of Microsoft partnering with Intel and other manufacturers is at an end. Some would say the old Wintel alliance died years ago, but the need to become more self-sufficient, in the way that Amazon, Google and Apple have done is now apparent. This is not to say that partnering is history, but it does suggest that more evidence of internal strength is required. That is quite a change for the company and the industry. Despite its travails, Microsoft remains one of the most powerful companies in tech and in business. That it is striking out in new ways may not mean it will succeed in regaining its past glory, but without doing this, that probably wouldnt even be a possibility. JL

Tom Krazit reports in GigaOm:

Nothing ever stays the same. On more than one occasion, it has taken Microsoft, one of the most important engines powering the rise of the technology industry, years to understand that. But with this week’s sweeping reorganization of the nearly 100,000 people who work for Microsoft, the company has signaled that it’s finally ready to abandon two-plus decades of business as usual in the tech industry.
Sure, Microsoft tends to shuffle the chairs a bit every year, as CNET’s Charles Cooper noted earlier this week. But this was more revolution than evolution: Microsoft’s famously loose union of sorta-friendly independent states has been thrown overboard in favor of an organizational structure “focusing the whole company on a single strategy,” as CEO Steve Ballmer wrote in an internal memo (later shared with the world) outlining the changes.
That may be easier said than done. In true Microsoft style, the memo announcing the reorganization was bloated and complicated: at nearly 2,700 words, had I been his editor, I would have saved it back to Ballmer with some tweaks and suggestions.
There are now 12 separate groups at Microsoft, and the descriptions of each group were populated with words only a management consultant could love, like “dotted-line report” and “cross-company looks.” But the vision was understandable: in order to become a modern technology company, Microsoft has to become a company that “… will focus on creating a family of devices and services for individuals and businesses that empower people around the globe at home, at work and on the go, for the activities they value most,” Ballmer wrote.

Meet the new boss

That’s a very different Microsoft from the one that, from the early 1990s until around the mid 2000s, dominated the personal and business computing industries. Companies moving in the right direction don’t reorganize themselves.
The new Microsoft is no longer the enabler of technology delivered to consumers with help from Intel, Dell, HP, Lenovo, and other partners. The new Microsoft has realized that it’s going to need to do it all itself, a truism of the modern computing age made clear by the overwhelming success of Apple over the last six to eight years.
Microsoft has never publicly endorsed the late Steve Jobs’ description of the early days of this new era of computing as the “post-PC era,” for obvious reasons. But the term “PC” is only mentioned in Ballmer’s memo four times, and three of those references are to history — to ways in which Microsoft has changed the tech industry in the past. The word “devices,” on the other hand, is mentioned 18 times, and most of those are, as they say in this business, “forward-looking statements.”

And on the enterprise side, Microsoft finds itself behind Amazon — a company originally organized around a very different purpose than enterprise computing — when it comes to providing infrastructure capabilities to the companies that are outlining the future of mobile computing on platforms that, also somewhat painfully, aren’t Windows Phone. The low-cost Windows-Intel server juggernaut that ruined the likes of Sun Microsystems is itself under attack from cheaper servers built by companies using Linux and servers built around chips made by ARM.
Yet Microsoft is not a company in peril, as many of us appear to think. The PC market, while contracting, is still quite large and profitable — for Microsoft at least. The company earned $6 billion in overall profit during its last quarter and the former Windows and Business divisions remain profit engines. It’s unclear how Microsoft will report earnings in the future (company executives dodged several questions to that effect this week) but we might get a better idea in a few weeks when the company reports its latest earnings numbers.

Crossroads seem to come and go

However, there is no dispute that Microsoft is a company searching for direction.
The defining company of the PC era — which for the purposes of this discussion we’ll consider the 25 years from 1981 to 2006 — has not articulated a unique and compelling vision for the future of computing since Apple’s iPhone rocked it to its core in 2007. It has certainly made its presence felt — the design breakthroughs from the Windows Phone efforts have without question made an impact on the mobile era, as Apple’s Jony Ive is well aware — but Microsoft is somewhat of an afterthought when measuring how buyers react to the most important computing trend of the present, and that hasn’t happened since Jimmy Carter was president.
In Mirosoft’s history, Ballmer’s memo might go down as equivalent to the famous memo Bill Gates sent to his troops in 1995, regarding the rise of the internet as something that Microsoft must navigate in order to survive.
“The Internet is a tidal wave. It changes the rules. It is an incredible opportunity as well as incredible challenge,” Gates wrote in that memo.
Can this clear and massive shift in priorities have a similar effect on Microsoft? If nothing else, it has surely set off the race to replace Ballmer, as BusinessWeek’s Ashlee Vance pointed out earlier this week. And it’s still a very fair question as to whether Ballmer is the leader best equipped to bring usher Microsoft into this era.
But what this reorganization makes clear is that Microsoft now thinks it will have to control its own destiny: no longer will it depend on Intel for the computing power, Dell for manufacturing expertise, or HP for marketing heft (and, lest we forget, all of them for its technical support) to get its technologies in front of the public.
The cozy days of the PC industry are over. Much like Google’s purchase of Motorola put every Android smartphone and tablet maker on notice that one day they’ll probably have to take matters in their own hands, Microsoft’s reorganization reminds a wide variety of partners — from Dell to Nokia — that their longtime patron has decided they are part of the problem, and not part of the solution.