Analysis: Microsoft reorganization needed to end internal 'turf wars'

IDG News Service - Microsoft Corp.'s reorganization makes sense for the company, which was getting too big and unwieldy under its former structure to continue to be managed efficiently, industry analysts said today.

Microsoft this afternoon consolidated six divisions into three, each with its own president. Those groups are the Microsoft Platform Products & Services Division, led by Kevin Johnson and Jim Allchin as co-presidents until Allchin retires at the end of 2006; the Microsoft Business Division, with Jeff Raikes as president; and the Microsoft Entertainment & Devices Division, with Robbie Bach as president.

The new Platform Products & Services group will comprise the current Windows Client, Server and Tools division and the MSN online services division. The business group will consist of the current Microsoft Information Worker group, including Microsoft Office, and the Business Solutions group, which includes CRM and ERP applications. And the new entertainment division will oversee the development of entertainment and digital devices, such as IP television, Xbox and other consumer-oriented digital lifestyle products.

The changes reflect an effort by CEO Steve Ballmer to install more professional managers in top positions as Microsoft evolves into a large, mature company with nearly 60,000 employees, Matt Rosoff, an analyst at independent research firm Directions on Microsoft, told Reuters. Directions on Microsoft is based in Kirkland, Wash.

"There's room for improvement in areas such as clear product road maps and delivering timely updates," especially in the Windows division, Rosoff said.

As software becomes more complex to deliver and deploy, Microsoft is shifting toward delivering product updates and software-based services over the Web. "I think they thought of putting in a more sales-oriented person [Johnson] who talks to customers all the time and really knows what they're asking for," he said.

He predicted that additional personnel changes in the company's lower ranks are likely as the impact of the restructuring trickles through the company.

Rob Enderle, principal analyst at research firm Enderle Group in San Jose, said the restructuring will enable Microsoft to more efficiently deliver products combining technologies from divisions that previously had difficulty working together because they were in separate organizations.

"The company had become almost unmanageable," he said. "In the past two and a half years, it felt like you just couldn't get anything done. The turf wars became more pronounced."

Enderle used the example of handheld gaming machines, which are currently hot in the consumer gaming market, where Microsoft's Xbox product plays. "Microsoft couldn't build one because you have to bring together a bunch of different groups that don't work

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