Microsoft Reorg: The Missing Answer
by Jean-Louis Gassée
After repeatedly tweaking its divisional structure, Microsoft tries a more radical realignment along functional lines like, you know, that other company. The lengthy, bombastic but confusing announcement leaves one big, vital question unanswered: What happens if PC sales keep falling?
In a July 11th, 2013 memo to Microsoft employees, Steve Ballmer announces a “far-reaching realignment of the company that will enable us to innovate with greater speed, efficiency and capability in a fast changing world.”
In a few words: Microsoft will switch from a divisional to a functional organization; from what has often been labeled as silos — or even warring fiefdoms — to a set of functional groups aligned to execute the company’s new “devices and services” strategy.
Inevitably, several observers have called this new structure Apple-like, that it’s a clone of the model developed and ferociously enforced by Steve Jobs, and now shepherded by Tim Cook.
As the healthily satirical Bonkers World visualizes, Microsoft wants to move away from this…
and become more like this…
Nick Wingfield’s NY Times article, titled Microsoft Overhauls, the Apple Way, puts it this way:
It is yet another sign of how deeply Apple’s way of doing things has seeped into every pore of the technology industry.
Or see Fortune’s Adam Lashinsky, in Seeing Apple in Microsoft’s reorganization:
I think I’m being completely rational in my shock at Steve Ballmer’s latest reorganization of Microsoft. His long memo explaining it to employees is one long homage to the Apple that Steve Jobs re-created between 1997 and 2011. Everything about the reorg sounds like Ballmer wants Microsoft to behave more like Apple.
The comparisons to Apple, by Mssrs. Wingfield and Lashinsky, aren’t just piquant stabs at a flailing giant. They see the problems.
I’ll add my perspective.
There are enormous differences between the scorched-earth reorganization of Apple ’97 and the “far-reaching realignment” of MS ‘13:
- 16 years ago, Apple was on the ropes. The market numbers spoke loudly and cleared minds.
- Apple’s business was extremely simple: Macintosh personal computers.
- A charismatic co-founder returned and told everyone to Think Different — and then he enforced the diktat.
Apple came up with a string of monumental hits after Jobs’ return in 1997 — iPod/iTunes, Apple Stores, iPhone, App Store, iPad. All of these offerings were facilitated by the company’s now celebrated functional structure, but none of them were created by the reorganization. Put another way, functional structure is a necessary but not sufficient condition (a point to keep in mind when considering Apple without Steve Jobs).
I greatly admire Ballmer’s determination to never give up, never admit failure, always look forward, attitudes that are well-served by his imposing physical presence, impeccable speech, and unshakable composure. But this change isn’t the sort of organizational tune-up that he has perfected over the last three years, it isn’t another iteration of spring cleaning that has resulted in the high-level departures of Robbie Bach, Ray Ozzie and, earlier this year, Steven Sinofsky (who was found guilty of Windows 8).
Removing a loyal but obdurate contradictor, sanctioning bad performance and foul politics is one thing. Reshaping the culture of a huge organization (97,000 employees) is a qualitatively and quantitatively different task. Habits of the mind and, even more challenging, of the heart are extremely hard to change. And, certainly, Microsoft’s culture needs an overhaul. It has caused the company to miss or mishandle Search, Social Networks, Advertising, Smartphones, and Tablets, and to make a meal of the latest version of their iconic Windows product.
Can a reorg suddenly bestow the vision and agility to regain lost ground, undo (at least) one bad decision, and also win the next land grab?
In attempting to answer these questions, Ballmer’s memo manages to confuse rather than reassure. In the first place, it’s way too long — over 2,700 words — and points to yet another memo that’s even longer.
The satirical site, Joy of Tech, had its way with Ballmer’s epistle. First, the executive summary…
Then the details (click to enlarge)…
And their effect…
Read both memos and ask yourself two questions: Who writes such corpospeak (or is it copro-speak)? And what does it say about its authors’ clarity of thought?
Despite its length, Ballmer’s pronouncement manages to avoid a fundamental question: What happens to Microsoft if PC shipments continue to fall?
According to the usual suspects, PC shipments fell by 11% this past quarter compared to the same period last year, marking the fifth consecutive quarter of the “longest duration of decline in the PC market’s history.” The state of the economy and the tepid reception to Windows 8 are partial explanations, but the primary reason is plain to see: Android and iOS tablets and (to a lesser extent) smartphones are cannibalizing PC sales.
According to a VentureBeat post:
Tablet shipments are expected to grow by almost 70 percent in 2013, sending desktop and laptop computer shipments into a “nosedive.”
When looking at these numbers we should keep in mind that Microsoft’s Windows 8 “tablets” or hybrid devices are counted as PCs while Gartner and IDC keep separate tabs for the PC-devouring devices, which they gingerly call “media-consumption” tablets.
Let’s take a step back and look at the history of Microsoft’s business model.
The company was reasonably prosperous even before DOS/Windows and Office, but its never-before-seen riches came from a division of labor: PC OEM vassals were left to fight among themselves for market share while the licensing overlord enjoyed monopoly pricing for its Windows + Office sales. (When Ballmer cheekily says ‘We’re all about choice’, he means the choice between PC makers racing to the bottom, not choice between Windows/Office and alternatives.)
After Local Area Networks (remember The Year of The LAN?) and then the Internet emerged, the company looked invincible. The Windows + Office stronghold yielded a natural tie to Exchange and Windows Server products.
With this in mind, the decline in Windows PC/tablet sales are bound to have a cascading effect on Microsoft’s business. Fewer PCs means smaller Windows licensing revenue and, in turn, diminishing Office dollars. The once powerful tie-in between Windows and Office now turns against Redmond.
And the cascade continues: Smaller Office volumes result in lower demand for extremely high-margin Exchange and Windows Server products. In the meantime, non-Microsoft tablets and smartphones continue to invade formerly Microsoft-only Enterprise customers. The erstwhile truism You Won’t Get Fired For Buying From Microsoft has lost its lustre. Permission is now granted to buy from interlopers.
Microsoft greased this downward slope by clinging to its tactic of always having it both ways; that is, doing something new while preserving backwards-compatibility. The approach has been successful in the past… but it foundered Windows 8 and tablets. The step into the future was a different touch-based UI; the foot in the past was the old desktop User Interface. For customers, the result was confusion and frustration; for PC manufacturers, the outcome was lower than expected sales.
Google and Apple took a different route: Instead of shoehorning a desktop OS onto less-powerful and battery-constrained hardware, they designed operating systems that easily slide into the slimmer, sexier footwear. Under the hood, we see a similar “from scratch” approach: Tablets and smartphones aren’t just “smaller PCs”, they’re target-specific devices built around custom (System On a Chip) processors.
The market has voted: Tablets that are just tablets are trouncing Microsoft’s hybrid tablet/PC devices.
To reverse this downward spiral Microsoft needs to come out with a real tablet, not the insincere and unsuccessful ARM-based Surface RT device. This means a tablet that’s powered by Windows Phone with Office applications that are specifically, integrally designed for that OS. Once this is done, why not go all the way by selling iOS and Android versions of the same productivity suite? This would protect the rest of Microsoft’s Enterprise ecosystem, and would be much better than today’s half-baked Office apps on the iPhone, or their absence on the iPad and Android devices.
We’ll see if the new Microsoft regime can really Think Different.
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PS: Only for the technically inclined, Drew Crawford’s learned, articulate post on the effect of small RAM size on mobile device system and application software. As this long post attempts to cloud the Web vs. Native apps discussion with facts, it brings up a little-discussed fact: PCs easily offer 8Gb of RAM (as opposed to SSD “disk space”), but mobile devices are generally limited to 1Gb or less because RAM needs to be always powered on, thus limiting battery life. This significantly smaller RAM fundamentally impacts the design of the system and application software. Mobile OS and apps are not like PC products only smaller.
