Microsoft Reorganization Rumors

It’s a big week for Microsoft news due to TechEd and Computex, but also just the general news flow.  Microsoft CIO Tony Scott has left the company.  From an external perspective this has little obvious impact and I’m not going to spend any time on it.  What I wanted to cover today were the exploding rumors of a major reorg within Microsoft.

Other than some reactionary changes as a result of people leaving the company, Microsoft hasn’t done a major reorg in quite a while.  Back in the old days the reorgs were pretty much annual events, with (at least some) employees sitting on pins and needles each spring waiting for details to be finalized.  The reorgs would be delayed for weeks as Bill tried to get senior executives comfortable with new positions.  I recall one reorg that was delayed almost indefinitely as Bill tried to convince one senior executive (who reads this blog occasionally) to take on a new role.  He chose to leave the company instead.  Reorgs are painful things.

Some years back Steve Ballmer reorganized the product groups around user segments.  Server and Tools Business is the segment responsible for products sold to IT for IT use.  Microsoft Business Division was responsible for products sold to Businesses for Business use (with IT as an operational and purchasing intermediary rather than the primary user).  Windows and Windows Live was the division that creates products for end-user client computers.  Etc.  Financially Microsoft still rolls up into this segmentation.

As senior executives left Microsoft over the years the mapping of the original segmentation to the management structure has broken down, with Steve taking on more and more direct reports.  E&D split into IEB and Windows Phone as well as spinning pieces into other organizations (e.g., Windows Embedded went to STB, presumably because it is in the “sold to IT for IT use” category).  MBD split into Office and Microsoft Business Solutions.  And of course with the departure of Steven Sinofsky the Windows Division really split into two leaders reporting to Steve, leaving him effectively the President of Windows.

The use of the title President is somewhat tied to the alignment of the financial reporting segment and organization structures that had originally been put in place.  Steve could delegate responsibility for a segment to a President because that leader had direct control of the organization that delivered products to the segment.  A previous attempt to have a single virtual leader for the Server and Tools segment had failed, demonstrating the need for the segment owner to have actual control of the products.  Now that the segments and organization structure often have no single leader Steve has to fulfill that role.  I have always expected that it was only a matter of time before he decided to collapse the product groups back in to a more rational structure.  And it seems like that time has arrived.

What is being reported is that the new focus on Devices and Services is behind the change.  I don’t know if that is really the driver, or if it is just one of the pivot points used in thinking the reorganization through.  For example the structure outlined in the Bloomberg  article doesn’t seem like a pure split Devices and Services split but rather more of a cleanup effort.  And let me be clear, the rest of this is pure speculation.

What, for example, might Satya own for “Enterprise” that he doesn’t already have in his portfolio?  From a customer segment perspective Dynamics might be one possibility.  Think about how Oracle combines its Apps and Infrastructure business to solve enterprise customer problems.  And, recall that Satya once lead Microsoft Business Solutions.  But the more interesting question is where in the new structure does Office land?  Does it split into Office Servers as part of Enterprise and Office Clients as part of a Qi-lead applications and services business?  Keep in mind that those two parts of Office were managed quite independently for a long time, so such a split might be a lot less messy than it seems.  Or does Office report fully to Satya leaving Qi to focus on consumer applications and services?

There are some other things that seem more obvious to me.  What used to be called Windows Live was originally part of Online Services before moving under the Windows business.  But recall that at the time Windows, Online Services, and STB shared a President (Kevin Johnson).   With those “Live” services now ubiquitous across Microsoft’s platforms (Windows, Windows Phone, and Xbox) as well as having non-MS OS client support, it makes sense to move them to Qi.  Likewise for Xbox Live.  And if you want to round things out then shouldn’t Xbox Music and Xbox Video also live in an Applications and Services business?

The rumor of having Don Mattrick running the device business are interesting given his background is entirely in gaming.  However, the Xbox is also Microsoft’s most successful device to date making Don the current Microsoft senior executive with the most hardware experience.  I presume that he’d retain the console while picking up Surface and other as yet undisclosed products. And, of course, if the rumors of a Microsoft acquisition of Nook Media LLC are true then it seems like Nook devices would live in this business.

And where does Tony Bates fit into all of this?  So far we have rumors that he has a major role to play, but then when you play musical chairs you don’t see the chair he would occupy.

Having co-leaders of the OS business with Julie and Terry seems like a cop-out.  It’s probably because Steve actually wants to retain more direct oversight of those efforts for the time being.  At some point though he needs to name a President to run that.

So how about the losers in all of this?  That would seem to be Kirill and, particularly Kurt.  Kirill has the smallest business to have someone with the title President, much smaller than many Microsoft products.  So it makes sense to move MBS (back) into another organization.  I don’t know if Kirill would retain the title (so you had a President reporting to a President) or become a CVP.  On the other hand Kurt runs the biggest business at Microsoft.   So either he isn’t being mentioned because there are no changes to Office, he is planning to leave and that actually helped trigger the reorg, he was ok with a different and (perhaps) less prominent role, or he’s the real loser in the game of musical chairs.

Of course Microsoft could end up with a very different structure, different details than what I speculate, more minor tweaks, or even just leave things as they are.  We won’t really know until they announce something.

Let me close with one more question/comment.  Will Microsoft change the financial reporting structure?  If Microsoft is really in the Devices and Services business than that is a more telling sign than the org structure.  Of course, I’d hope that the new org structure somehow mapped to the financial reporting structure.  Not that it has to.

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9 Responses to Microsoft Reorganization Rumors

  1. Bill Scheel says:

    Your post is all over the map. Reading this, I might as well take out a newly minted Lincoln coin and start flipping.

  2. Charles Fitzgerald says:

    I think this is about cleaning up the Windows situation more than anything else.

    Could Bates end up with Office?

  3. Pete says:

    This gossip about who wins and who loses is just more political muck.

    Would be much nicer to ponder the possibilities of some of the potential re-orgs. Such as a unified HW division. Or what Qi Lu would do with unifying more services.

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