Microsoft Reorg Explained

When I first caught wind of a pending and massive Microsoft reorganization in April, I was told that the goal was to split the company into two business units, Devices and Services, which would mirror the firm’s new strategic direction. Today, Microsoft finally announced its reorg plans, and things are a bit more complex. So while CEO Steve Ballmer’s email to employees is unnecessarily long, it’s really not that hard to explain what’s happening.

First and most generally: That two-headed dream of months past has since been cast aside as too impractical. Check out my news article, Microsoft Announces Sweeping Reorg, for the basics of the change. This article will serve instead to simplify and explain a letter that Mr. Ballmer wrote to employees announcing the reorg.

Organized by function. Under Microsoft’s previous corporate hierarchy, the firm was split into business units that mapped pretty closely to its core products: Windows, Office, Windows Server and so on. Under the new structure, Microsoft is organized by function. So the new top level groups are Engineering, Marketing, Business Development and Evangelism, Advanced Strategy and Research, Finance, HR, Legal, and COO. That seems like it’s just as ugly as before, I know. But that’s OK, because as far as we’re concerned, only Engineering matters.

Engineering. This is broken into four main groups that map to the previously stated plan of having two main groups, Devices and Services. But there are four now—OS, Devices and Studios, Applications and Services, and Cloud and Enterprise—plus a separate Dynamics group that we’ll just ignore for now.

Who. In those four main Engineering groups, we see four key Microsoft executives emerge as the new core leadership team as far as actual products are concerned. At least two are shockers. They are Terry Myerson (OS), Julie Larson-Green (Devices and Studios), Qi Lu (Applications and Services) and Satya Nadella (Cloud and Enterprise).

What: OS Engineering Group. Client operating systems including Windows, Windows Phone, Xbox, and “back-end systems.”

What: Devices and Studios Group. All hardware development (Surface, Xbox) and Microsoft’s “Studios” experiences, which are games, music, video and other entertainment. (They should have called this group Devices and Entertainment, obviously.)

What: Applications and Services Group. Office 365, Bing, Skype, and other online services.

What: Cloud and Enterprise Group. Windows Server, Windows Azure, Visual Studio, and Microsoft’s other datacenter, database, enterprise IT and development tools products.

Top-tier products. Mobile devices, Windows, Office 365 and Windows Azure are described as “foundational” to Microsoft’s future.

Second-tier products. Xbox and Bing are “key contributors” moving forward.

Will it work? Time will tell, and even Mr. Ballmer is circumspect in this area, noting that things will continue changing through the end of the calendar year. So while this is all momentous, more is coming. Stay tuned!