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Microsoft Reorganizes Executive Structure

Posted on: Wednesday, 21 September 2005, 00:00 CDT

Sep. 21--Microsoft reorganized its top team Tuesday, setting up three stand-alone divisions that can move more quickly in Internet-related businesses against rivals Google and Yahoo!.

The new structure, which combines seven divisions into three, is aimed at giving several executives more power to unify strategies across the company, and it creates the biggest executive shuffle at the software giant since 2002.

Richard Doherty, an analyst at the Envisioneering Group, said it was no accident that Microsoft grouped its MSN business, Internet search, and other Internet-related efforts into one division with the Windows operating system group.

"They must all be integrated to withstand the challenges from Yahoo and Google," Doherty said.

The reorganization elevates the role of some executives, including Ray Ozzie, a collaboration software pioneer, while it accommodates the pending retirement of Jim Allchin, Microsoft's Windows architect.

In an internal company memo to employees, Microsoft's chief executive Steve Ballmer said, "Our goal in making these changes is to enable Microsoft to achieve greater agility in managing the incredible growth ahead and executing our software-based services strategy."

Microsoft also hopes to improve its ability to make money from Internet advertising, an area where Google excels, Ballmer said in an interview with the Associated Press. According to recent reports, Ballmer has been furious about the drain of Microsoft talent to Google, including former Microsoft executive Kai-Fu Lee.

By paring down seven divisions to three, Ballmer said, "I think that ought to lead to crisper, faster actions on certain kinds of decisions we need to make."

Together with Microsoft's hiring in August of Wal-Mart executive Kevin Turner as chief operating officer, the changes create a reshuffling of the executive hierarchy for the first time since chief executive Ballmer set up seven different operating divisions in 2002.

"This addresses problems that the last reorganization created," said Rob Enderle, an analyst at the Enderle Group in San Jose. "We've seen it become increasingly dysfunctional where the groups aren't working together. Products like the Media Center version of Windows weren't improving as much as they might. This acknowledges the massive complexity at Microsoft, and it should streamline them."

Since the rise of the Internet, Microsoft has come to regard software as a service, or a continuously updated product that generates subscription revenues rather than one-time sales.

Ozzie, who joined Microsoft in March as chief technical officer, will take on additional duties to make sure all the divisions take advantage of the software-based services strategy. Enderle said that Ozzie is a technical strategist who might be viewed as Microsoft's counterpart to Linus Torvalds, the creator of the freely available operating system Linux, one of the primary threats to Microsoft's Windows monopoly.

Allchin, who was the group vice president in charge of Windows, will retire after Microsoft ships its Windows Vista operating system next year. But in the meantime, Allchin will be co-president of the Windows group, called "platform products and services," with Kevin Johnson, who previously ran sales, marketing and services. Allchin had wanted to retire earlier, but has been committed to getting the flagship product launched.

"I'm not surprised that Jim is leaving since he wanted to retire earlier," said Tim Bajarin, an analyst at Creative Strategies in San Jose.

Jeff Raikes, another longtime sales veteran, will be president of Microsoft's newly created business division, with responsibility for Microsoft Office software and other business-related software. The business division combines Raikes' own information worker group with another business-related division.

And Robbie Bach, who runs the Xbox business, will become president of Microsoft's Entertainment and Devices Division. Bach will oversee Xbox, and mobile and embedded devices. In each of the three divisions, some of the former group chiefs will report to executives who were formerly their peers. Pieter Knook, who ran mobile and embedded devices, will now report to Bach.

The division presidents report to Ballmer, while Ozzie reports to Microsoft Chairman Bill Gates, who is also chief software architect.

Enderle said the reorganization seems to set up the possibility of breaking the company up into different divisions. But he doubts Microsoft's leaders will do that. Rather, he says, "This reorganization gives them some benefits of a break up, like more autonomy for the divisions, but it doesn't have the downsides that come with a break up."

Bajarin also doubted Microsoft would break itself up. He noted that Microsoft may now need to name new chiefs to run businesses underneath the new division presidents. For instance, he said, he expects that Bach may have to appoint someone to run the Xbox business.

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Source: San Jose Mercury News

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