Less Could Be More At Microsoft

Going from seven units to three may reignite the entrepreneurial fires

For the last year, an anonymous Microsoft Corp. (MSFT ) employee, dubbed Mini-Microsoft, has blasted the company's top brass on his Weblog for being out of touch. Mini, as he's known around the Redmond (Wash.) campus, has criticized everything from stifling bureaucracy that slows development to an unfair review process that pits co-workers against one another. But when Microsoft CEO Steven A. Ballmer unveiled a major reorganization on Sept. 20, Mini finally saw a bit of light in the darkness. "Thank goodness," Mini began in a post hours later. "I felt like we've at least been thrown a bone."

Give Microsoft credit for acknowledging the challenges, some of which were detailed in BusinessWeek's Sept. 26, 2005, Cover Story. Just six days earlier, Ballmer had sat in an empty conference room at the Venetian hotel in Las Vegas and insisted that the software giant wasn't bogged down in bureaucracy. "We have the healthiest company in the world," he said.

But with the drastic streamlining of Microsoft's structure, Ballmer is clearly trying to improve its ability to vie against nimble upstarts such as Google Inc. (GOOG ) and Salesforce.com Inc. (CRM ). He's collapsing the corporate structure from seven groups to three -- Platform Products & Services, Business, and Entertainment & Devices -- with a president to run each one. It's meant to help execs make decisions quickly and be held accountable for their strategy. "The establishment of these president positions reflects the critical importance I place upon having strong leadership in all three groups," Ballmer wrote in an e-mail to employees.

Sounds good on paper. But will the changes at the top trickle down to the rank and file? "It's good that they recognize the issue, but a reorg is only step one," says Jason Maynard, a Credit Suisse First Boston (CSR ) analyst. Microsoft still needs to find a way to compete against Web-based rivals that don't have the legacy PC business that can sometimes slow Microsoft down.

There's no question that Ballmer chose capable men to run the new divisions. All are sales and marketing vets who have previously worked for Ballmer. Microsoft's former global sales chief, Kevin R. Johnson, will run Platform Products & Services, along with Windows boss James E. Allchin, until Allchin retires at the end of next year. Jeffrey S. Raikes, who'll run the new Business division, is a 24-year Microsoft hand who now runs the $11 billion Information Worker group. Robert J. Bach, chief of the Entertainment & Devices division, most recently led the Xbox video game console business, a money-losing group that has nevertheless leapt over industry giant Nintendo Co. (NTDOY ) to the No. 2 spot. behind Sony Corp. (SNE ).


But the four will have their work cut out changing a company with 60,000 employees. For one thing, fast-moving development teams have complained of being saddled with the problems of slower moving ones. The next version of Windows, dubbed Vista, for example, was hobbled by plans to include a new way to find and store files. When that initiative faltered, the entire project got sidetracked. In an e-mail to employees, Allchin wrote that he hopes Microsoft will have "fewer roadblocks" in product development.

Will the reorg help Microsoft trim its growing bureaucracy? To take advantage of its strengths as it attacks several markets, the company has instituted formal processes to coordinate those efforts. But that has often led to endless meetings that distract workers from developing products. Microsoft hopes to streamline that process, putting product groups that depend on similar technology under the same organization. The question, of course, is whether merging seven divisions into three will really trim the red tape. Microsoft says the new chiefs know how to get things done. At this point, it's hard to tell how much difference the reorg will make. But one thing is clear: The company is taking steps to manage its business better.

By Jay Greene in Seattle

    Before it's here, it's on the Bloomberg Terminal.