Will Microsoft’s Reorganization Achieve Its Objectives?

Microsoft recently announced a massive reorganization to enable innovation at a greater efficiency. The move is being branded as the One Microsoft initiative toward the unification of their strategy. What was the prevailing structure before the reorganization took place?

As suggested in the book How We Test Software at Microsoft, Microsoft earlier had a sort of divisional structure with three groups—Platform Products and Services Division, Business Division, and Entertainment and Devices Division. While these may have undergone some change since the book was written, fundamentally they had divisional structure with each division being led by a separate president reporting to the CEO.

While Microsoft knows best the answer as to why this reorganization was needed, Steve Ballmer's memo revealed some indications:

• The fact that Ballmer mentions One Microsoft as one of the motivations for carrying out the reorganization itself suggests that Microsoft was not really working as one organization before.
• Tight integration among Microsoft's offerings seems to be one of the motivations here, and this can be understood from the fact that Steve Ballmer's memo refers to the word "integrate" in different forms as many as six times.
• Divisional strategies taking precedence over the organization's strategy was one of the problems as could be understood from a remark in the memo, "We are rallying behind a single strategy as one company—not a collection of divisional strategies."

So what is the new organization structure? As Steve says in his memo:

We will organize the company by function: Engineering (including supply chain and datacentres), Marketing, Business Development and Evangelism, Advanced Strategy and Research, Finance, HR, Legal, and COO (including field, support, commercial operations and IT). Each discipline will help drive our overall strategy.

In management theory, functional structure is akin to input-based organization—in which people are organized per the input or skills they bring in. Divisional structure, on the other hand, is more of an output-based structure. Functional structure is often considered more efficient because people are organized by their area of expertise, and they can deliver the output faster.

On the other hand, there is always a risk of creating functional silos in a functional structure, where people with one set of skills don’t communicate enough with people of different function. Microsoft probably had already seen the demerits of divisional silos in the prior structure. One thing that should work in their favor now is that they should have a greater chance of people aligning with a single strategy—unlike in the past where each division had different strategies.

Strategy helps create sustainable competitive advantage, and organization structure helps organizations achieve the strategy. Only time will tell whether Microsoft will succeed in its reorganization. But one thing is for sure—it will require a massive communication effort, enabling a positive cultural change and strong leadership from senior management to have a huge workforce focused on a singular strategy.