On Thursday, Microsoft (NASDAQ:MSFT) finally made clear the reorganization plan it's been working on. Many investors and analysts had been waiting for this day for a long time. Now we will be looking at a new Microsoft that will hope to get rid of many stereotypes associated with the company, such as "boring" "non-innovative" and "slow to adapt."
The company's CEO Steve Ballmer sent a memo to Microsoft employees in order to lay out the details of the new plan. Microsoft is attempting to adapt to a fast-changing environment. The company has been working on increasing the speed of product releases, customer interactions and strategic responses in order to become more competitive.
So, what's the new plan? The company had been enjoying a divisional hierarchy for a long time (since the time of Bill Gates). The structure was centered around products, and each product had its own management, marketing, business development and finance business units. This created a lot of layers in the management and slowed the decision making process significantly. Now, the company will look at how its products function together and build teams around this idea. This will improve the integration of the Windows ecosystem across devices such as computers, Xbox devices and Windows Phone devices.
For example, Terry Myerson used to be the VP that's responsible from the Windows Phone. Now he will become the VP of operating system engineering and he will be responsible for Windows, Windows Phone and Xbox operating systems to make sure that these three operating systems integrate perfectly in order to create a strong ecosystem (like the one Apple did).
Satya Nadella became the VP of cloud and enterprise engineering. His previous position was involved around Microsoft's server and related tools, and now it includes Global Foundation Services. Because cloud and enterprise businesses of Microsoft go together, he will be responsible from both business units. As you can see, Microsoft is taking its products that work or integrate together and hands them under one leadership in order to make sure that the ecosystem is fully integrated. In the past, each product would have its own manager.
Julie Larson-Green is another example. She used to be the VP of Windows Engineering and she now became responsible for devices including the Microsoft Surface tablet, the Xbox hardware and mice and keyboards produced by Microsoft. Notice that there isn't a smart phone in the list of products she's responsible from, because, as I've been saying for the last year, Microsoft doesn't plan on building a smart phone anytime soon. For the time being, the task of building smart phones is designated to Nokia (NYSE:NOK).
Finally, Qi Lu who was responsible with Bing and other online services of Microsoft became the boss of multiple projects including a variety of applications (also known as "apps"), Microsoft Office, Skype, the Lync and Yammer.
The plan is not only about moving people around, but it's also about moving products together. Also, the company will be cut into two parts: devices and services. After this, instead of being a holding of multiple smaller companies (technically that's what Microsoft was), the company will be one highly focused corporation. In the last couple years, Microsoft has been spending a lot of time, money and other resources in order to catch up to the competition in the war of ecosystems. The new company will be in a much better position to accomplish its goals now.
The structure is not the only thing that's changing at the company either. The company is changing its mindset and the way it approaches its competitors and partners. In the past, there were many times when Microsoft was openly hostile towards competitors. Lately, the company has been commenting about how some of its products work or integrate with Apple's products and how the company's partnership with Nokia is going. Microsoft is still in "war" with Apple and Google; however, the company now understands that it can co-exist and benefit a relationship with its competitors. Until recently, it used to be very rare for Microsoft to honor its competitors by mentioning their names during conferences or presentations but that's becoming a more frequent thing for the company now. This is just another sign that things are changing at Microsoft.
The investors took the announcement pretty well. During the day, Microsoft's share price was up by nearly 3% it neared $36. This is the highest share price Microsoft has enjoyed since 2007 and things can get a lot better if the company's latest restructuring is able to influence its earnings positively in the medium term.
Disclosure: I am long MSFT, NOK. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.