Microsoft Reorganizes Into Three Divisions

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By ROBERT GUTH Staff Reporter of THE WALL STREET JOURNAL
Microsoft Corp. announced a major reorganization designed to better equip the software giant against Google Inc., Linux makers and other companies exploiting the Internet to quickly develop and distribute software.
The Redmond, Wash., company said it would create three major divisions, each run by a single president and reporting to Chief Executive Steve Ballmer, according to a person familiar with the company's plans.

The divisions include Platform Products and Services, which for the next year will be co-headed by Group Vice President Jim Allchin and Kevin Johnson, who most recently served as group vice president in charge of Microsoft's sales division. The division will include Microsoft's Windows group and its MSN online business. Mr. Allchin, who now runs the Windows division, will retire late next year, Microsoft said.

Jeff Raikes, Microsoft's group vice president in charge of its Office software unit, will run a new unit called the Business Division that will house Office and Microsoft's business software, which includes software for handling functions such as accounting at small and medium-sized businesses.

The architect of Microsoft's Xbox videogame business, Robbie Bach, will head a new unit to be called Entertainment and Devices that will combine consumer groups including Microsoft's videogame business and its mobile-phone unit.

Mr. Ballmer said in an interview that he reworked the company's structure to exploit the Internet to create new businesses and to enable "transformation in existing businesses."
The reorganization appears to respond, in part, to the increasing threat of new rivals that are exploiting the Internet to sell software. The Web-based companies' more-agile approach in some cases has allowed companies like Google, Salesforce.com and makers of Linux to be quicker to market with software innovations than Microsoft. Microsoft's reorganization could help it counter those new rivals.

Why is Microsoft Re-Organizing? It had become too cumbersome and bureaucratic. Example: there are 1,200 corporate vice presidents, each making $1,000,000 a year salary. The competition and lack of internal innovation are making Microsoft look vulnerable, which if nothing else makes stock options worthless (and investments in MSFT dead money).

Will The Re-Org Make a Difference? Not right away. Every last business has to fit under the three "wings" of the organization. For example, Microsoft Business Solutions (i.e., the Great Plains and Navision apps) are part of the business division. There will be distractions while MBS makes nice with the Office people.

When Will We See the New Go-to-Market Plan? Not until next year. A lot of marketing collateral is gonna get trashed before even seeing the light of day. Lots of midnight oil for the marketing pukes -- who will be sharing Chinese takeout leftovers with the Windows Vista and Office 12 coders. Why? Because the make-or-break 2006-2007 product cycle has to reflect the new divisional structure -- and budgets, personnel, bonus pools, marcom programs, etc. I expect a quiet autumn as Microsoft goes very internal for a while.

What's Missing? Microsoft will never catch up to the vision of Google et al without a whole lot more output from Microsoft's Chief Software Architect, Bill Gates. After 25 years at this job and billions in the bank, you have to soberly ask the question whether Bill still has the focus and stamina to pull a whole new technology vision together, work the concensus internally, and get it programmed. With no programming capacity during the late Office 12 and Windows Vista development cycles, the question kinda answers itself: Microsoft will have no deliverable riposte to Google for literally years. Which makes it sad to see a still great technology company on a trajectory to cede the mantle of visionary leadership to younger, more adept rivals. Sad, but an oft repeated fact of the computer technology industry.