How the Microsoft reorganization was covered

The ubiquitous software giant Microsoft announced Thursday a huge internal overhaul in hopes of sparking innovation and putting a stop to the infighting that’s damaging the company.

Here are excerpts from the Wall Street Journal story:

Microsoft Corp. unveiled a broad reorganization Thursday aiming to break down internal fiefs that have slowed product development and caused friction among teams of employees.

In its place, Microsoft is imposing a more horizontal plan with managers who will oversee different kinds of functions—like engineering, marketing and finance—and apply them to multiple product and service offerings.

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Microsoft’s restructuring follows a strategic plan, which began taking shape about a year ago, to shift its identity away from being a producer of operating systems and application software. Instead, the company wants to be known for devices—designed by Microsoft itself or by partners—and services that are closely tailored to work with that hardware.

The strategy shift, though it still relies heavily on software development, emulates the way rivals like Apple Inc. and Google Inc. have approached development of products such as smartphones and tablets.

Microsoft had already developed successful combinations of hardware and software, like its Xbox videogame console, but in other cases has been hurt by largely independent product units working in isolation.

The New York Times outlined details about how the company will restructure in an attempt to get divisions to work together instead of against each other:

Microsoft said it would dissolve its eight product divisions in favor of four new ones arranged around broader themes, a change meant to encourage greater collaboration as competitors like Apple and Google outflank it in the mobile and Internet markets. Steven A. Ballmer, the longtime chief executive, will shuffle the responsibilities of nearly every senior member of his executive bench as a result.

“To execute, we’ve got to move from multiple Microsofts to one Microsoft,” Mr. Ballmer said in an interview.

It remains to be seen whether more cohesive teamwork, if that is what results from all the movement, will offer the spark that has been missing from so many of Microsoft’s products in recent years.

The company has been widely faulted for being late with compelling products in two lucrative categories, smartphones and tablets. Its Bing search engine is a distant second to Google and loses billions of dollars a year for Microsoft.

Rivalries among the company’s divisions have built up over time, sometimes resulting in needless duplication of efforts. Microsoft managers often grumble privately that one of the most dreaded circumstances at the company is having to “take a dependency” on another group at the company for a piece of software, placing them at the mercy of someone else’s development schedule.

The Reuters story makes an important point for shareholders to remember, that the internal changes will be a large distraction for the staff:

The moves realign the company that helped revolutionize the personal computing industry in the 1980s into what Chief Executive Steve Ballmer calls a “devices and services” corporation – a nod to Apple Inc, which has surpassed it in profit and market value in recent years.

It is also an implicit rejection of “software”, the business which Microsoft helped pioneer and drove the worldwide adoption of personal computing, but in which it faces stiff competition from new rivals that have popularized Internet-based services.

Executives told reporters and analysts on a conference call they did not plan layoffs for now. But a certain amount of employee disruption is to be expected as the company modifies its device marketing and development strategies.

“It can be a major distraction. The details have to be ironed out, there will be a lot of water-cooler talk and that’s happening as the company has some critical products coming out, like a unified phone, Xbox,” Gillis said.

Microsoft’s shares have gained almost 30 percent this year, helped by a rally that began in late April when the company released strong revenue and earnings during what was one of the worst quarters for PC sales on record.

They closed Thursday up 2.8 percent at $35.685.

The Journal reported that the old structure had been in place since 2005, but the new one might not solve all of Microsoft’s problems:

The current corporate structure had largely been in place since 2005. At the time, Mr. Ballmer had argued that greater autonomy would allow product groups to make decisions more quickly. Now, however, he argued that greater collaboration was a more pressing priority, as devices and online, or “cloud” services, must work better together.

“We will pull together disparate engineering efforts today into a coherent set of our high-value activities,” he wrote in the memo. “We will see our product line holistically, not as a set of islands.”

Analysts and former Microsoft executives noted that the change will require more discussion and negotiation among managers, neither of which are necessarily conducive to speedy action. Once action is taken, however, the results for users could be improved.

This is an important story for shareholders. Despite the stock’s gains made this year this reorganization will likely determine returns for the next several years. Anything that helps the behemoth become more nimble is a good thing for investors. Here’s hoping that it’s not too late.