Microsoft Expands Bureaucracy, Crowns MSN King

News Analysis: Microsoft's reorganization means a new focus in its product lineup and a broad definition of organizational "streamlining."

As part of Microsofts reorganization announcement Tuesday, the company crowned MSN and services as the new kings in its product lineup.

And, although the reorganization was described as a streamlining, it added another layer of bureaucracy to a company already leaking employees as it creaks under burgeoning middle management, according to analysts.

"What Microsoft has created are three super groups, a new layer of organizational bureaucracy," said Joe Wilcox, an analyst at Jupitermedia Corp. "The seven divisions will stay the same and retain their own profit and loss. … Still, we now have three presidents, which we didnt have before."

/zimages/5/28571.gifClick here to read more about Microsofts reorganization announcement.

As it is, Microsoft Corp. has been suffering major employee defections to Google Inc. as well as overall employee dissatisfaction, as spotlighted by recent media coverage in publications including BusinessWeek and Forbes.

Those jumping ship as well as unhappy stay-behinds cited issues that include the companys increasingly suffocating bureaucracy, with workers chafing under new procedures, 14-hour strategy sessions and divisional infighting that derailed design and delays product releases.

An example of these tensions came this month when Microsoft took computer scientist Kai-Fu Lee to court to stop him from working for Google. At the time, Lee described how Microsofts 20 development centers in China duplicated efforts and even fought over the same job candidate.

Google, in contrast, isnt squashing its workers with middle management, Lee said in court. "[Googles] culture is very supportive, collaborative, innovative and Internet-like—and thats bottoms-up innovation rather than top-down direction," he was quoted as saying in a BusinessWeek article this week.

Indeed, between the PowerPoint mindset now holding sway and this reorganization, some observers said they see signs that Microsoft is shifting from a realm ruled by innovation and technological breakthrough to one in which sales and marketing hold sway.

/zimages/5/28571.gifRead Scot Petersens commentary here arguing that Microsoft needs to concentrate on innovation.

"Kevin Johnson [who was named as co-president of the new Platform Products and Services division] is more from a sales background, not a technical leader like Jim Allchin is," said Matt Rosoff, an analyst at Directions on Microsoft.

Allchin, currently senior vice president of Windows development, will retire by the end of 2006, following the release of Microsofts Windows Vista operating system.

Beyond this increasing bureaucratization and the ascendance of marketing-oriented leaders like CEO Steve Ballmer, the reorganization doesnt amount to much, analysts said.

"Theyll still have seven profit and loss business units from a financial perspective," Rosoff said. "They were never all completely independent."

Indeed, beyond the companys leadership shuffle, the most important move is that of MSN into the Platform Products & Services Division, which also comprises Windows Client and Servers and Tools, analysts said. Mobile and Embedded, meanwhile, is moving out of that division.

The relocation of MSN comes after Microsofts proclamation during a recent financial analysts meeting that the company has its eye on hosting services for businesses.

"I find the grouping somewhat interesting," Jupitermedias Wilcox said. "Perhaps most interesting is MSN joining Windows and Servers & Tools. For one, it says something about MSNs future role in Microsoft. MSNs role will increase. Well see more services coming out of MSN."

Next Page: Acquisitions and APIs hint at Microsofts plans.