Microsoft Unveils Restructuring with Motto “One Microsoft”

Jacob Harper |

microsoft

In an announcement posted to their website on July 11, Microsoft (MSFT) CEO Steve Ballmer outlined a complete top-down restructuring of the tech company. Microsoft has long lagged behind tech giants Apple (AAPL) and Google (GOOG) as their PC business continue to dwindle.

According to the New York Times, the company’s previous structure of eight separate product divisions had engendered a competitiveness and bureaucratic inefficiency that contributed heavily to the company’s inability to keep pace with its competitors. In an effort to distance itself from its reputation for internal squabbling, Microsoft has rebranded the new organization “One Microsoft.”

Microsoft is now split into the following groups:

  • Operating Systems Engineering
  • Devices and Studios Engineering
  • Applications and Services Engineering
  • Cloud and Enterprise Engineering
  • Dynamics
  • Advanced Strategy and Research
  • Marketing
  • Business Development and Evangelism
  • Finance, Legal and Corporate Affairs
  • Human Resources

Under the new structure there are four product divisions instead of the previous eight, and every division’s financial components are now grouped in a single division of Finance.

The restructuring announcement claims a renewed companywide focus on “more collaboration and agility,” which is understandable goal for Microsoft. The company needs to do something, or it will continue to be clobbered by its more nimble competitiors. "Microsoft is sweating its lost market share," Karl Volkman, CTO at consultancy SRV Network, said. "Microsoft does own the business computing environment. However, since personal computers are no longer the gadget of choice for the consumer market, Microsoft is floundering there." In short, a change in direction is an absolute necessity.

Microsoft has so far been unable to keep up in two of the fastest growing tech product categories, tablets and smartphones, currently dominated by Apple  and Google. They haven’t been able to move into cloud tech as fast as they’d like. And their search engine Bing is a laughably distant second to Google, and costs Microsoft roughly $2 billion a year in losses.

If the phrase “One Microsoft” sounds familiar, think about cars. Ford has for years operated under a unifying strategy they dubbed, fittingly, “One Ford.” It’s not surprising Ballmer is aping Ford CEO Alan Mullaly so directly. Ballmer has long been an admirer of Mullaly, and even wrote his entry in the Time 100 list.

Jim Cramer was more pointed, saying on CNBC July 11 that Microsoft’s restructuring is “exactly what Mullaly did.” The “One Ford” strategy, which aimed to “accelerate development of new products,” has been largely successful for the car company. Ford has branched aggressively into China, India and South America, and Mullaly turned an expected $12.6 billion loss in 2006 to a Q2 2012 net profit of $1 billion. Ford’s stock has doubled from a year ago, and currently sits at $16.92.

Ballmer appears to think the strategy to centralize and renew focus on aggressive product development and expansion will work for tech like it worked for cars. Ballmer has talked repeatedly about transforming Microsoft into a “devices and services” company, one able to keep up with the burgeoning demand for mobile tech. To accomplish that transformation, he’ll need every facet of the company united. Moving a $295 billion market cap company in a new direction isn’t easy, and if he wants to duplicate Ford’s success he’ll really have to make Microsoft work together. A renewed strategy will have to effect real change and find rela solutions - and not just rearrange deck chairs on a sinking ship.

Microsoft is up 2.03 percent on the news to hit $35.70 a share. They’re up 32.61 percent on the year.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

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