No I am not going to spill oodles of Microsoft gossip about the latest McKinnsey Consulting engineered re-org at Microsoft. In fact I cannot even say that it was McKinnsey that engineered it. Pick your choice of any of the hundred year old consulting firms and I am sure one of them was the winner of the Microsoft sweepstakes.  Somewhere a lucky Account Manager just blew away his quota.  Hopefully he has found a sunny beach somewhere on this great planet of ours.  These things garner a lot of press and are scrutinized and analyzed by people with greater credentials than myself.  However it is fun never the less and worth the effort.  Re-orgs are a part of America’s corporate culture, it’s a way of life.

When I first started at Microsoft in 1991 we went through a re-org almost right away.  It just was not called a re-org at the time.  It was decided to create the Office of the President with 4 separate heads of state.  We of course had Bill Gates, Steve Ballmer, and then Frank Gaudette who was our CFO and Mike Maples, who headed all applications.  Because at the time Microsoft was a shooting star and the leaders were well-known and respected, it was not such a big deal.  Plus the company was only 7500 employees.  Any type of restructuring did not take very long.  Usually within a week it was business as usual and for most employees it did not seem to impact us at all.

Since those early days every re-organization has been bigger, broader and bolder.  The politics have become more brutal as there are always winners and losers.  It has become a virtual white-collar blood bath.  To be fair this is in no way unique to Microsoft, it is a simple function of corporate America.  What seems a tad sad is it used to feel like Microsoft was above that kind of petty politics, but over time Microsoft has been hardened as a company.  It has matured and evolved as employees have grown older and now have families, which is a larger responsibility.  It has weathered a brutal DOJ trial.  And it has seen its once bright star fall from the sky.  Now re-orgs are more viewed as a way to back to a glorious past.

The current re-org just announced a few weeks ago is big.  It will fundamentally alter how the Microsoft Product Groups will work.  No longer silos as they have been throughout Microsoft’s history but part of a larger broader engineering organization.  Trying to create what is believed to be a more strategic and nimble organization, made to service customers with new releases in six to twelve month cycles and no longer three-year cycles.  It is daunting in the sense of not that it cannot be done, but how long will it take to create the structure in order to execute upon the vision.

When you think of what happened you have four engineering orgs – and here are the winners:  Terry Myerson owns the Operating System stuff (Windows, Windows Phone, and Xbox).  Qi Lu owns Application Services (Bing, Office 365, Office Servers and Client, Skype, Yammer and Lync).  Satya Nadella owns heads the Cloud and Enterprise Group (Azure, Windows Server, SQL Server, Visual Studio and System Center),  Finally Julie Larson-Green owns hardware (Surface, Mice, Xbox, keyboards and anything else hardware).  I am going to spare going into detail on each group.  In my simple view Satya Nadella is the winner as he will not have to change a lot for the Enterprise.  Microsoft is doing well in the Enterprise and his re-org does not change the overall structure too much.  Julie Larson-Green has a big challenge in making Microsoft into a viable hardware company, but that being said since Microsoft is not known as a hardware company it represents a green field opportunity for the company.  Terry Myerson has all the OS’s and it should be interesting to see from an engineering stand point what that means, in particular Xbox which has always done their own thing.  Qi Lu I do not envy you.  At a high level I think it is about integrating Bing with all the apps inherited, kind of like Google has done.  But is a bunch of disparate applications that somehow will have to come together.  From an engineering standpoint not an easy task.  Not to mention I am not sure what integration between Yammer, Skype, Office and Bing will look like.

I could write much more about the challenges and probably an essay on each engineering group, not to mention the challenges in marketing that Tammy Reller faces.  This ranks as the biggest shift in how Microsoft operates ever.  Gone are the Business Groups.  The Product Groups are now subsumed into the various engineering groups.  All the processes that supported the old system will now have to be evaluated and changed.  From a sales operations standpoint, change will take place.  Internal communications will change.  How partners work with Microsoft will change.  Development processes will change. All these things are being done to create a faster and nimbler organization.  The question is how long will it take to get there?  More importantly how long does Microsoft have?

If I am taken by one thing from this re-organization it is how readily the model was borrowed from a primary competitor, Google.  This idea that everything springs from engineering.  From a Google standpoint this concept is very much a part of the companies DNA.  This is how they grew up, how they evolved.  Microsoft grew up in an environment where each product group charted their own destiny.  Competed in the marketplace and competed internally for the Microsoft sales forces attention.  From an engineering standpoint each of the 4 units will have to put processes in place so that software engineering across the individual unit will march to the same cadence.  Not easy when you are taking various products and mashing them together with other products to come up with a singular flow.  This after decades where product groups each operated in their own silos.

So the final and biggest question is why?  I think a large part of this is Microsoft has finally accepted the reality of the post-PC era.  Try as they could to deny it, and trust me they tried so many ways of doing marketing spin to warp reality.  First it was some apps could only be done via PC as they required the local processing power of a PC.  There was Software as a Service which they tried to spin as Software AND a Service.  Ballmer thought the iPhone was stupid.  Then he said Apple would never sell those iPad things.  To be honest it is kind of an embarrassing list.  Now that is has been accepted the realization must have been that the current organization does not support the direction Microsoft needs to go to survive, so it had to be changed.

It would be easy to come to the conclusion is this is a last gasp effort to stay relevant as a company, but I don’t think so.  Despite its recent earning miss, Microsoft is still pretty much a money printing machine.  They can still generate cash even of the re-org fails.  Can they last forever?  No company can last forever, and in a dynamic industry like technology that is especially true.  It is going to be an interesting process to watch.  The most interesting will be to watch how quickly they can move.  In the meantime some business consulting’s acct manager is sipping drinks on a beautiful beach many miles away, I think I will go join him or her,

Good Night and Good Luck

Hans Henrik Hoffmann July 25, 2013