Can a Reorg Revive Microsoft?

Late last year, Microsoft CEO Steve Ballmer announced that his company would refocus on “devices and services” (his public letter on the topic barely mentioned the word “software”), but it took nine months for him to make good on that threat. His companywide reorganization, announced July 11, is meant to breathe new life into the conglomerate by knocking down the walls between divisions and appointing “champions” to guide projects through every stage of creation.

“One Microsoft all the time,” is how Ballmer’s jargon-filled memo on the reorganization summed it all up.

Ballmer’s organizational changes will affect pretty much every single corner of the company, especially after existing teams finish work on current projects such as Windows 8.1 and Xbox One. But his focus goes beyond consumer products: he even gives a shout-out to Big Data, suggesting that Microsoft will attempt to stake out a much more prominent position in the burgeoning field of data analytics. In a separate note posted on Microsoft’s Website, he wrote: “We are well-positioned to reimagine data platforms for the cloud, and help unlock insight from the data.”

The “new Microsoft” features many new and reorganized groups, with a number of executives shuffled around (and a whole lot of dotted lines connecting them to each other, in terms of responsibilities and reports). “Certainly, succeeding with mobile devices, Windows, Office 365 and Azure will be foundational,” Ballmer wrote in his memo. “Xbox and Bing will also be key future contributors to financial success. Our focus on high-value activities—serious fun, meetings, tasks, research, information assurance and IT/Dev workloads—also will get top-level championship.”

Can Microsoft pull this off? Is it capable of transforming into a faster, meaner animal capable of battling IBM and Oracle on the enterprise side, while pushing back against Apple and Google in the consumer realm?

In order for the company to succeed, it needs to shake off nearly a decade of fat and rust. Last year, Vanity Fair published a much-publicized feature that characterized Microsoft as “bloated and bureaucracy-laden, with an internal culture that unintentionally rewards managers who strangle innovative ideas.” What had once been a lean-and-mean company had fattened into a collection of slow-moving fiefdoms, filled with executives more interested in defending territory than competing toe-to-toe against Apple or Google.

By the early 2000s, the piece continued, brutal corporate politics resulted in employees struggling “to beat out their co-workers for promotions, bonuses, or just survival.” The so-called “stack ranking” review system, which demands that managers place their employees on a scale from “top” to “poor,” was cited as a key fuel source for that viciousness—it led to infighting, a focus on short-term performance, and perfectly acceptable employees shoved in the “poor” category simply because someone needed to be there.

The Vanity Fair piece suggested that Microsoft was at an “all-or-nothing” moment, its future hinging on the success of then-in-development initiatives such as Windows 8 and the next-generation Xbox. While many of those initiatives have yet to bear fruit, user response to Windows 8 has been somewhat underwhelming—for example, so many consumers and businesses complained about the software’s tile-centric, touch-friendly Start screen that Microsoft was forced to include a boot-to-desktop option with the upcoming Windows 8.1.

A quick survey of Websites such as Mini-Microsoft, where Microsoft employees congregate and vent under the cover of anonymity, reveals a litany of complaints about the stack-ranking systems and general workplace toxicity. “Culture is beyond toxic and stack ranking is shooting msft’s top folks in the back of their heads,” reads one typical comment on Mini-Microsoft, posted in November 2012. “They have dismissed so many talented people over the past year and we are heading to the nearest competitors as fast as we can.”

Microsoft is supposedly working to fix its internal ranking system. “Details [in the Vanity Fair article] are cherry-picked to the point of caricature,” a Microsoft contractor with knowledge of the company’s internal processes told Slashdot a few months after the piece came out. “It’s not Sparta.” That being said, the source was reluctant to share many details about the new-and-improved evaluation processes.

If Ballmer is truly detonating the walls between Microsoft’s fiefdoms (“one Microsoft,” and all that), the increase in communication between various business units could make the company more responsive. But given its sheer size, no amount of structural reorganization will make it move at startup speed—not unless its various divisions are broken off into separate companies, as some investors have long advocated.

And full-speed-ahead might not be the solution to Microsoft’s current issues. For many years, Microsoft executives were tightly focused on defending the company’s two core franchises, Windows and Office. Nearly every product had to interoperate in some way with Windows; if you believe the scuttlebutt, potentially promising projects such as the Courier tablet were killed because the Windows division felt threatened. If Microsoft wants to pour some accelerant on its fires of innovation, it may need to step away from its former defensiveness and pour some of those billions of dollars into truly out-there projects.

Apple, Microsoft’s longtime rival, used to have an advertisement that celebrated “the crazy ones,” the “round pegs in the square holes.” Apple made a public show of embracing that ethos, and in many ways it paid off—for the past decade, the company’s invented whole new categories of product. For Microsoft to reclaim at least a portion of its former dominance—or at least reverse some of its more worrisome downward trends—it might not be a matter of shuffling some executives and creating some new work-groups: the stolid behemoth might actually have to get a little crazy.


Image: monticello/