The Real Reason Behind Microsoft’s Restructuring

You’ve probably heard the one about the departing CEO who hands his successor three numbered envelopes and says, “Open these if you run into trouble.”

When the company indeed begins to flounder, the new CEO opens the first envelope, which reads, “Blame your predecessor.” Six months later and still in trouble, he opens the second envelope. Inside is one word, “Reorganize.” When that also fails, he reads the third envelope, which says, “Prepare three envelopes.”

I can just see Microsoft (NASDAQ:MSFT) CEO Steve Ballmer, sitting back in his corner office chair up in Redmond, Washington, an envelope marked with a number 2 in his hand.

In the technology industry, reorganizations rank right up there with logo changes and new headquarters as ludicrous wastes of time and money. Not only that, but they’re often harbingers of bad things to come.

If you think that’s what’s in store when Ballmer unveils his plan to restructure Microsoft in the coming days, you’re very much mistaken. For Ballmer, this is it. He’s going all in, laying his cards on the table. This is his Lou Gerstner moment. Microsoft may not be a turnaround, but make no mistake; the stakes couldn’t be higher.

The new logo that preceded last year’s rollout of Windows 8 signaled big change ahead. Change intended to reverse the growing perception that Microsoft has become irrelevant, a relic of a foregone age when Wintel PCs were the only game in town. An age before smartphones, tablets, and social networks changed the rules.

Ballmer reinforced that message in the company’s annual shareholder letter, calling it “a fundamental shift” in how Microsoft runs its business and develops its technology and putting all the company’s stakeholders on notice that he intends to reinvent the software giant as a “devices and services company.”

Just as the logo change meant far more than colors, fonts, and whatever fluff all the branding people were talking about back then, this restructuring isn’t going to be your average, everyday “shuffle the deck and see what happens” reorganization that tech CEOs are famous for and managers lose sleep over.

This is for all the marbles. You see, the hardest perceptions to overcome, the toughest ones to change, are those that are based in reality. And for Microsoft, for the company that once ruled the high-tech world, the reality is this:

The markets that Microsoft serves have been fragmenting for years. Granted, that fragmentation has largely been a consumer phenomenon, but in time, it will without a doubt infect the slow-moving enterprise IT world, as well.

With every passing day, users spend less and less time on devices running the once ubiquitous Windows operating system and more and more time on Facebook, Twitter, LinkedIn, Google search, Gmail, iTunes, and millions of apps that run on Apple iOS and Google Android.

We live in a mobile world, a social world, a cloud-based world. And Microsoft doesn’t rule that world.

That’s why shares of Microsoft and its PC duopoly partner Intel have more or less flatlined for the past decade. Investors had little confidence that either company could reinvent itself. Until recently, that is. Shares of Microsoft are up 22 percent this year. That’s a big move for a big company. Clearly, analysts like what they’re hearing. Now we’ll see if Ballmer can actually deliver.

In order to do that, Ballmer’s got an enormous challenge ahead. If he wants to transform Microsoft from a software behemoth to one that thinks and acts like a devices and services company, he’s going to have to do what Gerstner did when he taught his Big Blue elephant to dance.

He’s going to have to change Microsoft’s culture. To initiate that change, he’s going to have to simplify the company’s organizational structure.

For inspiration, he might look at Apple’s leadership team: Just ten executives total with clear lines of responsibility. Apple’s management structure is as simple and effective as its iconic brand, products, and services.

That’s what Microsoft needs. It needs to simplify. Ballmer needs to bring crystal clarity and razor-like focus to what he hopes to achieve, his vision for the company. If he wants Microsoft to become a devices and services company, whatever that means, then its organizational structure needs to reflect that.

Besides identifying the products and services the company will be focusing on to achieve its transformation, Ballmer will, in all likelihood, empower certain executives with expanded responsibilities. That won’t be pleasant for those who are passed over. With all that uncertainty, you can bet there’s a little more drinking and a lot less sleeping going on in Redmond, these days.

One thing’s for sure. For Steve Ballmer, this restructuring will be his legacy. It will determine how people view his tenure as the CEO who followed the legendary Bill Gates. When Ballmer took the job, Microsoft was America’s most valuable and powerful technology company. Today, it’s third behind Apple and Google. For Ballmer and for Microsoft, the stakes couldn’t be higher.