Microsoft reorg - It's about Increasing Margins in short term with a long term view on Innovation

So much is being written about Microsoft reorg that was announced last week. Read the details of the reorg here. Essentially Microsoft is aligning across four major divisions, Cloud, OS, Devices and Apps with each division headed by an EVP. The supporting functions of Marketing, Advertising, HR, Legal, Finance etc will also be headed by an EVP. You can read some great insights on the reorg here:

Sometime back Steven Sinofsky, ex-President of Windows division of Microsoft wrote about reorgs. To the point of why reorgs, he writes:

Reorgs are typically instituted for a pretty common set of reasons, some of which on their own can cause people to retreat to a defensive or cynical state of mind.  Some common drivers include:

Resource efficiency. The role of management is to effectively allocate resources and in fact is really often the only tool management has. As a product and team evolve, resource allocations that seemed perfect at one point can seem less than optimal. An organization change has the potential to allocate resources more effectively towards the problems as they are today. Duplication of efforts. In any organization of size, over time efforts will start to converge or overlap. This is especially true in technology companies. This can be at a very visible level, for example if many groups are working on basic tools for editing photos or user names. This can also be at an infrastructure level such as how many teams have people buying servers or running labs.

Individual bandwidth. Sometimes teams or responsibility grow and the management of the work becomes too challenging or individuals are spread across multiple projects too frequently. Managers at any level can systematically have too many direct reports, for example. Alternatively, the product line can change or evolve over time and folks on the team find themselves context switching between somewhat unrelated projects more than actually managing. This lack of bandwidth becomes a problem for the team overall as everyone evolves to having more overhead than work.

Structural challenges. Organizations evolve over time in a way that suits the time, problem space, and skills. Sometimes when you take a step back, the current state ends up being suboptimal going forward. The alignment of resources, decision making, even core roles and responsibilities are not yielding the results. More often than not, this type organizational pain is felt broadly by the team or by customers.

Synergy / Strategy. The notion of increased synergy or strategic change generally drives the most challenging of org changes. Many are familiar with these challenges-—the effort to move large blocks of work in sort of an architectural view. Motivation is this sort often is about “proximity” or “relationship” and has the feel of architecting a product except it is about the team that builds the product.  There’s a tendency to create “portfolios” of products and teams when organizing along these lines.

Alignment.  Alignment is slightly different than synergy/strategy in that it speaks to how the organization should be viewed moving forward.  A long time ago, for example, the Office team at Microsoft shifted from building Office “apps” to building the Office “suite”.  Alignment also could include many mechanical elements of businesses/products like customer definition, business models, ship dates, and so on.

This is exactly the reason Microsoft reorganized themselves. This is a great idea and means two things to me more than anything else:

  1. Increase in Innovation - A well-aligned Microsoft will mean more focus on combined strategy with structural challenges removed. This should spur greater innovation with boundaries clearly defined (though boundaries often blur as time progresses). Each division owner in the new org will have more flexibility to choose what features make way into the OS, how these are structured for e.g. OS under one division could result in single code base for all devices that come out, resulting in more focus, less marketing and support costs.
  2. Margin Improvement - I haven't seen many people talking about Margin improvements which will definitely increase with the kind of reorg Microsoft has undertaken. Consider Windows, Windows Phone and erstwhile XBOX Division, all were making software and/or devices and I am sure that all of them had their own platform for code storage, testing and development etc. This reorg by putting all OS work under one division will reduce the duplication of efforts and increase resource efficiency. This will also mean reduction in training costs and greater movements for employees across the org leading to greater employee satisfaction and thus retention. All these efforts will directly impact margin in positive manner.

In short term, I see this reorg positively impacting the Margins of the company and in long term the margins are aided by the greater innovations this reorg can bring in. The most complex and interesting thing now is how Microsoft lands this reorg which is always most difficult thing to do. Please note, Microsoft is no stranger to reorgs. Again read this great essay by Steven Sinofsky on what not to do when landing reorgs.