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Wednesday, September 21, 2005 - Page updated at 12:00 AM

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Microsoft streamlines to challenge competitors

Seattle Times technology reporter

Microsoft's presidents


Here are the execs leading the company's new business groups

Jim Allchin, 53, co-president of Microsoft Platform Products & Services: Former head of Windows platform group. Announced he's retiring late next year after Windows Vista ships. A Florida native, he has a doctorate in computer science, developed operating systems at several other companies before joining Microsoft in 1990.

Kevin Johnson, 44, co-president of Microsoft Platform Products & Services: Will run the group after Allchin retires. Rose to top of sales, marketing and services group after joining Microsoft in 1992. Worked in consulting and systems integration at IBM. Business-administration graduate of New Mexico State University.

Jeff Raikes, 47, president of Microsoft Business Division: Former group vice president of the information-worker business. Came to Microsoft from Apple Computer in 1981 to work on applications marketing and later led worldwide sales. A Nebraska native, he has a bachelor's in engineering and economic systems from Stanford University.

Robbie Bach, 43, president of Microsoft Entertainment & Devices Division: Former head of Microsoft home and entertainment division. Now oversees Xbox, PC games, hardware and software for phones and devices. Has MBA from Stanford and was a Morgan Stanley financial analyst before joining Microsoft 16 years ago.

You prune in the fall to have flowers in the spring, or at least that's what Microsoft Chief Executive Steve Ballmer hopes for with a massive reorganization that's intended to restore the company's agility.

Ballmer yesterday cut Microsoft's number of business units from seven to three, basically organizing the company around its three main products, Windows, Office and Xbox, and appointing a president to head each one.

The move is intended to end the bureaucratic malaise that has hindered Microsoft's ability to compete with fast-rising newcomers like Google and longtime challengers like Oracle, all of which are positioning themselves for all-out battle against the Colossus of Redmond.

Although sales of Microsoft's key products continue to increase, current and former workers have criticized the 60,000-employee company for a dense management structure that bogs down the building and shipping of products.

Some employees have even quit to work for smaller, more nimble companies that have the brisk entrepreneurial zeal Microsoft enjoyed during its glory days in the 1990s, before it became so big, mature and corporate.

Ballmer said the reorganization will help Microsoft reclaim some of its fabled agility.

"This is all about having great leaders who can drive agile innovation and agile decision-making," Ballmer said in an interview yesterday.

The move also reveals how far the 30-year-old company has evolved beyond its software-engineering roots. Ballmer is putting all three business units under the control of longtime executives who, like himself, rose from backgrounds in sales and management rather than software engineering.

Barry Jaruzelski, a management consultant, said the more hierarchical, centralized approach Ballmer is taking is one used by the military. It's better suited to making major moves quickly, and it comes as Microsoft heads into one of the biggest cycles of product launches in its history.

With clear chains of command, responses "can be very, very quick because of the fluidity of the battlefield," said Jaruzelski, vice president and managing partner at Booz Allen Hamilton's technology group in New York. "When you're trying to make rapid shifts in direction, that may be an appropriate model."

It's the second major reorganization since Ballmer became chief executive in 2000.

He divided Microsoft into seven business groups in 2002, a move that increased his direct reports from five to 13. Yesterday's move reverses many of the 2002 changes.

Asked what wasn't working, Ballmer said "Things are working well. We're always trying to improve, though."

Retirement catalyst

Ballmer said the upcoming retirement of Windows chief Jim Allchin prompted the changes.

Allchin, a Florida farm boy, rose to oversee development of the software running more than 90 percent of the world's personal computers. He will retire after the new Windows Vista software belatedly goes on sale in late 2006.

Allchin has been ill and rumored to be near retirement, but as recently as July he denied any changes were imminent.

At 53, he is the oldest primary Microsoft executive. Ballmer and Chairman Bill Gates are each 49.

In a memo to his staff yesterday, Allchin acknowledged the company has been having problems with its software-development process. He said the team has "learned some hard lessons" over the past few years but is learning how to produce better code and get it into customers' hands faster.

"My dream is for a much more agile, quality-driven engineering organization with fewer roadblocks and more open highway to speed on," he wrote.

For the next year, Windows will be run jointly by Allchin and former sales chief Kevin Johnson, then Johnson will take over. They'll be co-presidents of the new Microsoft Platform, Products & Services division, which includes Windows.

The unit also now includes the formerly standalone MSN operation and server and tools group.

Asked about the effect of placing a nontechnical person like Johnson in charge of Windows, Ballmer noted he himself had that job 20 years ago. His first job was marketing brownie mix at Procter & Gamble.

"It's a real reflection of the respect that I have, and that many of our people have, for Kevin as a strong leader," Ballmer said. "There's a lot of great technical talent in that division."

Johnson's placement reflects Ballmer's emphasis on customers, said Matt Rosoff, an analyst at Directions on Microsoft, a market-analysis company in Kirkland.

"He wants to put people in charge who have a lot of customer contact and really know what customers want," Rosoff said. "He understands the importance of having smart technical people, but I think he views executive leadership as more of a business role. We'll see how that works."

Business division

The second business group created yesterday, the Microsoft Business Division, will include productivity software such as Office and the small-business product line that was formerly a separate unit.

Jeff Raikes, who was leading the productivity group, is its president.

A third group, Microsoft Entertainment & Devices Division, will be headed by Robbie Bach, who has been leading the Xbox and home and entertainment division. Added to his responsibility is the mobile- and embedded-devices group.

Former server boss Eric Rudder will work directly with Gates on advanced technology projects and overall technical strategy, similar to a job he held earlier in his career.

Ray Ozzie, a chief technical officer who joined Microsoft through its acquisition of Groove Networks in March, will work with all three product groups developing services.

Ballmer separately has added new leadership to the company's business systems. A new chief operating officer, Kevin Turner, started work this month. A new chief financial officer, Chris Liddell, was hired in April.

Ballmer stressed that Microsoft has many strong products on the way and that the changes are intended to keep it performing well. The upcoming products include a new Xbox and a database and programming tool kit this year, and new versions of Windows and Office next year.

"We have a fantastic pipeline over the next 12 months," he said. "I want to ensure that we have a comparable kind of pipeline or greater, essentially, for the next several years."

The new division presidents are leaders, he said, adding, "We've tried to enhance their ability to drive that kind of innovation pipeline a little bit through structure."

Executives are starting to publicly acknowledge Microsoft's software-development process needs improvement. Current and former employees have also raised concerns in blogs about the pace and process of decision making.

Internal tensions were further revealed in the lawsuit Microsoft filed in July to prevent a vice president, Kai-Fu Lee, from starting work at Google, a company that has emerged as a well-moneyed rival in a spectrum of markets.

What remains to be seen is how much actual autonomy the division presidents receive, and how many decisions must still be funneled through Ballmer, Gates and the company's leadership committees.

"It might speed decision making if he [Ballmer] pushes decisions down to that next level, if they're making decisions he used to make and taking stuff off his plate he may not have been able to get to quickly," said Edward Lawler, distinguished professor at the Marshall School of Business at the University of Southern California.

"But it really depends on whether those three presidents have the kind of power they need to make quick decisions," Lawler said.

Also unclear is whether the changes will have a lasting effect on the stock, which closed down 16 cents yesterday at $25.84.

"If you look back over the past decade or so, you could probably count five or more reorganizations they've done at various levels to shake things up and get people focused on new or different threats or whatnot," said analyst Jonathan Geurkink at Ragen MacKenzie in Seattle.

"I don't know whether right off the bat it will have an effect or not."

Brier Dudley: 206-515-5687 or bdudley@seattletimes.com

Copyright © 2005 The Seattle Times Company

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