Microsoft's Latest Reorganization Won't Work Without Culture Change

By Wayne Rash  |  Posted 2013-07-14

Microsoft's Latest Reorganization Won't Work Without Culture Change

Microsoft has trumpeted its Great Reorg of 2013 with more than the usual hype. This time the shake-up included a press and analyst briefing, a company town hall and a speech from Microsoft CEO Steve Ballmer.

The good news is that Ballmer and other top Microsoft executives realize that the company has to change. The bad news is that Microsoft has a mixed history when it comes to solving the company's management problems through corporate restructuring.

The company certainly has had management problems, some of which could in fact be changed by reorganizing operations along a functional model. And much of what Ballmer said rings true. Until the July 11 announcements, internal feuds between divisions were legendary.

Organizational politics drove away a lot of Microsoft's best and brightest, while keeping the rest from innovating as they should. Worse, in some of Microsoft's unannounced purges the company dumped its best people and retained those who had mastered corporate infighting.

This time Ballmer personally installed specific new people into some of the positions the company has created. The result is what Ballmer calls "One Microsoft," and the stated goal is to rid the company of its highly unproductive fiefdoms that produced more internal friction than innovative products or profits.

Unlike the actions that Microsoft executives took during their unannounced reorgs in years past where employees were left to wonder if they had a job, this time there was some structure. But it's unclear whether the changes have filtered down to the rank and file now.

So what did Ballmer promise? In a very long and somewhat rambling memo, he laid out the new functional organization that Microsoft will follow. He also said that the changes were strategic and that current projects, such as Windows 8.1, Windows Phone and the Xbox, would be unaffected for now. Ballmer also talked about reforming the Windows Store and moving to a business model that could keep up with changes in technology.

But what Ballmer didn't really address is something much more important in the long run, and that's finding out what customers actually want in terms of products from Microsoft and how they want those products delivered. It's here that big technology companies are finding that opportunities are rife for missteps. How else can you explain the debacle that was Windows 8?

Microsoft was well aware that customers like Windows and Windows-like operating systems. Many of the user interfaces for Linux look like they came straight from Redmond, for example. Windows 8 probably tested very well with people using mobile devices where it makes sense.

But how could Microsoft's product managers release a touch-based operating system interface on a customer base that is equipped in large part with a keyboard and mouse hardware? Clearly Microsoft was trying to drive innovation by encouraging a touch interface.

Few people in the real world are going to drop a thousand or so dollars just so they can use a new OS.

Microsoft's Latest Reorganization Won't Work Without Culture Change

That's especially true in the business world where hardware replacement budgets have suffered greatly at the hands of the worst economic downturn since the Great Depression.

Of course, people don't just resist having change forced on them by Microsoft. As Apple is finding out from the shrinking market share of the iPhone, they don't appreciate being told what they want by Apple either.

And that's the key factor. The IT market is mature now. There is too much competition; the computers are extremely powerful; and there is more corporate money at stake than ever. IT companies can't just decree what the market wants or tell their customers that it's time to buy a new operating system or even a new PC. Customers have to come to their own conclusions that they're being offered something they need and want. The days of major operating system upgrades are over forever. One of Microsoft's biggest slipups was that it didn't know this in time.

But of course, some of this lack of knowledge is due to a previous purge by Microsoft. A couple of years ago Microsoft had a shake-up of its marketing department and in the process decimated that department's work force. It's worth noting that it's the marketing team that figures out what customers want so that products and strategies can be molded accordingly. While Microsoft will never tell us whether or not it's the loss of so many of its marketing experts at that time that brought about the poor marketing decisions that led to Windows 8, it's likely it had something to do with it.

And therein lies the problem. Reassigning people might be good if you don't also lose the expertise and creativity they brought to their current jobs. But wholesale corporation reorganizations run the risk that the meat may be trimmed instead of the fat. When that happens, nobody wins.

That is especially true for maturing companies such as Microsoft that are struggling to discover some formula for success that will allow them to catch up with the competition that has overtaken them in their core markets.

And unfortunately, it's usually hard to tell whether a reorganization has worked until years later, when it's too late to do much about it. That is unless the reorganization serendipitously results in a rapid change in fortunes in terms of innovative new products and rapid sales growth. But those are rare outcomes.

Adding to that difficulty is that managers must be given the authority to get performance from their organizations and be held accountable for the results. At Microsoft, as in the case of many large companies, real accountability is hard to come by.

Worse, if you reassign managers frequently, as has been the case at Microsoft for years, accountability at the middle level vanishes. Instead, managers and their staff never get to see if their plans work out, and if they don't, they're also never held accountable for that.

While Microsoft's reorganization might be a good thing, without internal controls that actually work and decisive business results, it'll be impossible to tell for sure.

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