Steve Ballmer at the Microsoft CEO Summit 2013. (Microsoft Photo).
Steve Ballmer at Microsoft’s CEO Summit. (Microsoft Photo).

Reports this week that Microsoft CEO Steve Ballmer is close to finalizing a giant reorganization — reshaping the company’s divisions and internal reporting structures — might seem like odd timing. It’s practically summer, after all. But actually, it makes perfect sense. Microsoft’s new fiscal year begins in July, and the company would need to get any new structure in place before then to make a clean transition.

This reorg has been in the works for months. When it’s formally announced, it will be positioned as part of Ballmer’s attempt to make Microsoft a “devices and services” company.

But as with many things, the real behind-the-scenes intrigue will involve money and power.

First, the money. When the news is announced, watch closely to see whether the changes affect Microsoft’s financial reporting structure, and particularly the level of insight that the company gives investors.

Microsoft’s shift to selling computer hardware is causing a fundamental change in its underlying business, as evidenced by the company’s first quarter earnings report. Revenue in Windows held steady at $4.6 billion despite a 14 percent plunge in PC shipments, which gave investors reason to be optimistic. However, a big part of the boost in revenue was due to sales of Surface tablets — and hardware translates into much lower profit margins than software.

surfaceproWhich is one reason why the Windows division’s operating profit actually dropped 20 percent for the quarter.

In its upcoming fiscal year, Microsoft will be launching new devices including the Xbox One. The company hasn’t yet announced pricing, but hardware traditionally loses money out of the gate, and given the Xbox One’s specs, it’s likely to follow the pattern.

With the reorganization, it may be possible for Microsoft to group products and structure the new divisions in a way that makes it less obvious, from the outside, how some individual product lines and business are actually doing.

Microsoft has a new finance chief, Amy Hood, who replaced Peter Klein after he decided to leave the company.

Second, the power. Microsoft’s choices about its new divisions and leaders will say a lot about its future direction, or at least Ballmer’s priorities as he looks to shape that future.

All Things D first reported the news of the impending reorg earlier this week, quoting people close to the situation saying that the changes could translate into bigger roles for Satya Nadella, president of the Servers and Tools division; Tony Bates, president of Skype division; and Don Mattrick, president of the Interactive Entertainment division, which includes Xbox.

Where’s Windows? They weren’t among the executives named in the initial press reports, but another key in assessing the reorg will be how Windows and its leaders — Julie Larson-Green on the engineering side and Tami Reller in marketing/finance — fit into the overall company. Both Larson-Green and Reller report to Ballmer, who decided not to name a new president of the Windows division following the departure of Windows chief Steven Sinofsky last year.

Overall, we’ll be watching closely to see if the companywide reorg gives Ballmer a more direct role in shaping products.

Is Microsoft’s next CEO likely to emerge from this process? Not necessarily. When he last spoke publicly about the issue, in 2008, Ballmer said he didn’t plan to retire until 2017 or 2018, which means there’s at least four years left in his tenure, if he’s able to stay the course. That’s a lot of time in the tech industry, and if there’s some actual succession planning going on here, it’s not entirely clear.

Microsoft isn’t commenting publicly yet, but it wouldn’t be a surprise if the announcement came very soon. All Things D’s report on the impending reorg earlier this week was followed by confirmations from Bloomberg and The New York Times.

Comments

  • John Kurc

    Firing Steve Ballmer would be first step that I would take if I was in a position to do so.

  • Josh Bruner

    Balmer is a legend, he is moving the company into Apple’s territory. This move could make their software and OS finally jive like a MAC. Pretty smart in my opinion.

    • http://post404.com/ Randall “texrat” Arnold

      Smart move. Probably not Balmer’s.

    • https://twitter.com/xarinatan Alexander ypema

      I don’t see how that’s a smart move, Apple’s trademark is pretty much dictating what’s right for their users, the absence of which I really loved about Microsoft– To an extent, of course, Microsoft is still a commercial company, but THEIR dictation is in the form of defaults, at least they give you the tools and options to overhaul the whole thing if you’d so wish, with Apple it’s either the defaults or you can just suck it.
      For some people I can imagine that works, you don’t have to think about anything, but for me that really doesn’t.

      Really this is one big reason why a lot of people are moving to Linux right now, because Microsoft is taking away people’s freedom of choice; You either take metro or you’re wrong (among other things to hate about Windows 8’s approach to Windows), that is just that arrogance I always hated about Apple.

  • http://www.techmansworld.com/ Michael Hazell

    Interesting.

  • Valerie Wright

    What Microsoft really needs to watch is how quickly can they mobilize their leaders and organizations after these changes. Too often it takes far too long after the initial organization announcement to finalize the details and teams become disconnected, people are confused and try to second guess decisions.

    Teams will want to know what does it mean for them personally, what decisions are going to change and when may they get more details.

    • Chyna Crisis

      Again, what she said. Worker bees feel a lot less enfranchised now than in the past – creative folks don’t do so well when they’re essentially replaceable cogs.

  • Guest

    As I’ve observed here and on other blogs, Microsoft employs hundreds of men who do nothing but whinge about Steve Ballmer. I support the leaning of the ranks.

    • Guest

      I agree. Install the armchair CEOs in their armchairs. These men belong in the great rooms of their underwater McMansions, not in a Microsoft office building.

      • UseGrammar

        Sorry, neither post makes sense.

  • BillG

    Everyone is doing just ENOUGH to get a good rating on their reviews. Which means AVERAGE is okay. Leadership is just trying to maintain their bonuses without getting fired.

    Promotions to average out the male to females counts is just making the matters worse. Don’t promotion because you need to meet a quota.

    Promote to energize innovation!

    I’m still a FAN, come on MSFT, figure it out.

    • bitcrazed

      Go work at Microsoft and only do enough to get your job done. Then see what happens in your perf review. You won’t last two cycles.

      • Chyna Crisis

        He speaks the truth. But what constitutes “above-and-beyond” has changed a lot since the early days. Being a killer-great technologist won’t get you a high review score anymore. You also have to be a political strategist and a scheming bast*rd of the first-water – ready to stab your cow-orkers in the back to get ahead. The loss of that early company culture is one of the reasons (the other being low stock value) that have people leaving in droves. It’s why I left, and I never got a review below 3.5 (or “exceeds expectations” nowadays).

        • bitcrazed

          While that may be true for some, thenvast majority of people who work at Microsoft and do an awesome job do so by doing an awesome job. There’s little reason to be a backstabbing bastard. Those that do tend to fail spectacularly when the bullshit runs-out.

          • eric norris

            Those awesome workers doing awesome work must not have worked on Vista, Windows 8 or ANY of their shit browsers.

  • http://post404.com/ Randall “texrat” Arnold

    Microsoft is slow to see the future, as usual, but once they Get It they pursue it persistently. As software perceived value plummets toward generally 0, hardware regains its former glory and services (also as usual) prove their obvious worth.

    • Josh Bruner

      agreed

    • Chyna Crisis

      … which is one of the reasons S/W work is being outsourced to places where they pay people $1/hr.
      What goes around comes around…

    • bitcrazed

      That must be why Microsoft has been on the ball in almost every major pivotal business transition from databases to email, from the introduction of tablet computing to creating the very notion of an ‘office’ software productivity suite.
      Sure, they stumble now and again, but even when they’re late to a game, they generally become a formidable force in said game. Just ask Lotus, AmiPro, WordPerfect, Novell, Sybase, Borland, etc.

      • Guest

        Any examples within the past 15 years, maybe?

        • http://post404.com/ Randall “texrat” Arnold

          Xbox. And Windows Phone is poised to be another one.

        • bitcrazed

          15 years ago (1998), Cc: mail & Notes dominated enterprise email – Exchange was a distant runner-up. In 1998, few would consider running their businesses on SQL Server 6.5 running on NT4 and fewer still would give up their Novell network setup to use NT instead. Today, Windows Server, Exchange & SQL Server have eliminated all but a few competitors in the enterprise IT landscape.

          Windows 98 was just about to hit RTM (June 25th – one day before Win 8.1 hits public preview). Win98 was instrumental in the mass adoption of the internet.

          • Bob

            Accurate. Meanwhile over the past decade they’ve had very little success against Apple or Google. As a result they lost their leadership in revenue, profit, market cap, industry dominance, and the stock has been dead money since the late 90’s. A ten year head start in smartphones and tablets was obliterated within a year by Apple and Google, in part through the largest competitive misjudgments in industry history. The offshoot of a storage provider is now the leader in OS virtualization. An online book retailer is now the dominant cloud infrastructure provider. Salesforce rules CRM despite MS spending billions buying multiple 3rd parties. MS’s decade plus IPTV investment, on which they blew more than $10 billion, has effectively been written off. The largest acquisition in MS’s history, aQuantive, was also written off. Windows is in decline. Office is stagnant. Bing loses billions and hasn’t gained a single point of share vs Google. Xbox still isn’t lifetime profitable after more than a decade and just shot itself in the foot at E3. Sorry, but it really isn’t credible to ignore that and argue 2013’s MS is anything like 1998’s.

            A popular financial website ran a story the other day that sums the situation up nicely. They ran an article proclaiming Apple was the new MS. In 1998, that would have been a huge compliment. Today, as intended, it was a huge indictment and – perhaps more importantly – understood by the site’s readership to be that without requiring any further explanation.

          • bitcrazed

            Certainly not going to argue with you nor anybody else that Microsoft has missed several golden opportunities and screwed up on more than a few.

            And I am not going to argue against the revolution that Apple kickstarted, Google have copied and through which Microsoft is forging its own path.

            But, if one views the world only through your negative points, it’d look like Microsoft is almost dead. Real numbers tend to paint a very different picture.

            Has Microsoft made a lot of mistakes? Sure. Show me a $76Bn-a-year company that hasn’t.

            Having some (limited) visibility into the company’s current and near-term direction, along with a lot of experience in how the company works and thinks, I feel more confident now than ever before that Microsoft is moving in the right direction and that its tenacity, resources and people can deliver awesome things.

  • Anon

    Budgets run July to June at MS, making a decision today on re-org extremely late in that process, as the new FY is largely locked and loaded internally. In the past MS has made this level of re-org decision in their Mid-Year Review process in Jan/Feb. So any re-org now will either have to a) live with a budget from an “old” structure, or b) completely re-do the budget for the next 12 months. Internal finance teams will be earning their keep in either case.

  • guest

    Another MS reorg. Yawn. More promises that this one will finally address the company’s decade long decline in competitiveness, agility, innovation, etc.
    Yawn.

    Remember when Ballmer promised 2013 was going to be “the most epic year in MS’s history”? How’d that turn out? How have his last dozen promises that [insert year] would see a MS “resurgence”?
    MS is run by a failed CEO and board. Collectively they have destroyed a once seemingly invincible competitive position in just over a decade, and they accomplished that despite spending more on R&D in each and every year than Apple and Google combined.
    MS probably needs a major reorg. But first it needs a new CEO and board. Otherwise, this is all just a meaningless sideshow.

  • Jono

    If Balmer is still in charge, Microsoft will continue down hill

  • Ray Casey

    MSFT Software already has leap frogged over everyone else. The idea of a Tiles Dashboard of relevant, timely and calculated/targeted information all wrapped in a UI that scales from Phone, to Tablet, to PC, to project, to TV is AWESOME! Regarding the live tiles, information at our finger tips. Static icons and opening an application at “zero state”, are as butt backward as old 3270 Green screens, and list driven UI> You can now PIN a tile on a surface (Phone, PC, Tablet or Tv) and it will surface relevant data, like top 10 clients currently, or orders that are at 80% probability of close. I don’t have to navigate to an application, run a query or click on URL. It is right there, at the surface. Get IT people… Or better yet use it and see what I mean…

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