Microsoft Deals With Organizational Stupidity

Thursday Jul 24th 2008 by Rob Enderle
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Excess complexity, denial of problems and a confused management hierarchy have plagued Redmond. Will recent changes be enough to produce a turn around?

One of the problems with any complex company is, well, the complexity, which can grow out of hand. In fact the first time I wrote externally about Microsoft as a new Dataquest analyst was to conclude that growing (and it was 1994) complexity would likely be the source of the company’s future problems.

For some time now, Windows has been becoming too complex and Microsoft’s Internet focus has been anything but focused. It really didn’t make any sense for the Windows and One-Line services group to be part of one business because there is so incredibly little synergy between the efforts. It felt and looked like someone was empire building. And the attempted acquisition of Yahoo might be argued to be an attempt to distract others from the fact that the current organization wasn’t working.

Well, Yahoo didn’t happen, Kevin Johnson, who headed this Frankenstein unit, is leaving Microsoft, and suddenly we have what looks to be two better focused units.

Let’s jump ahead to what this could mean in the future, after a little grousing about the ugly past.

Better Focused Windows

Windows has a number of serious problems, not the least of which is that most companies really don’t seem to want the platform. The bigger problem is it was clearly shipped unfinished by people who thought that it was so well done it would never need the critical service pack it recently received.

When the product was running late, key features were removed so it could hit its critical ship date – and it still shipped late and incomplete, surprising executive management who appeared out of touch with what was actually going on.

This showcased an organization that was probably not as incompetent as much as it was dysfunctional. People who should have known there was a problem not only didn’t, they believed the opposite, which is why it took so long to address the problems with Vista. First folks had to realize there were problems and that took an excessive amount of time, delaying the needed fixes by a year.

Microsoft doesn’t employ a lot of stupid people (every company has a few) so when this many people look incredibly stupid it generally is another problem you’re actually facing. In this case the Windows organization had reached a level of complexity where they simply could no longer execute.

By cutting the organizational complexity and providing direct executive oversight, Steve Ballmer is saying he is personally stepping in to make sure people get the job done without the distractions of other, perhaps seemingly higher profile efforts, distracting them from their primary task of creating a stunning Windows 7.

For Steve Ballmer, however, this removes deniability and he knows it, making it much more likely he will stay focused on the quality of the execution for this effort. And that is all for the good.

The Internet War

Google has been kicking Microsoft’s butt largely because Microsoft’s Internet efforts have been all over the map. And they made the historic mistakes of focusing on the competitor and not the customer, and targeting where Google was not where they were going.

This was hardly a new problem for Microsoft. They didn’t see the Internet coming and initially thought their future was a lousy AOL copy; they focused on Netscape because, according to many, Netscape going to be the next Microsoft, and most recently focused on Google. And, as noted above, Google kicked their butt largely by ignoring Microsoft.

Here too the problem was one of focus, not one of needing to buy market share. You don’t take two companies – both of which are having problems – to catch a larger competitor, slamming them together under the least capable, without creating a larger set of execution problems. And, as noted above, the related organization was already simply too complex.

The best way to make this deal go through was to propose it as a reverse merger, much like HP recently did with EDS and Apple eventually did with NeXT. Yahoo was the larger entity and as bad of shape as they were in, they were still executing better than Microsoft in this space. Given the big hang-up was the executive’s jobs, this would have addressed that and likely resulted in a stronger Yahoo owned by Microsoft, rather than a more complex Microsoft.

In the old blended Windows/Internet group you couldn’t even structure that deal. But with this change you now have a defined organization that could be merged into Yahoo if Microsoft wanted to propose something that might actually work.

In addition, now their Internet efforts have a focus, and given that the threat to their current market dominance is likely to come from the Cloud, this new unit it better structured to mount a cloud solution of their own. Granted they’ll still have to execute, but they just lowered the degree of difficulty for that execution substantially.

This organization now also reports directly into Steve Ballmer (who may be starting to spread himself a bit thinly). Indicating he’ll be taking a much broader personal interest in their real, rather than imagined, competitive advancements.

Ballmer’s Approach

Steve has a history of remembering that successful units need to identify and focus on the customer more than the competitor and he knows Microsoft’s strengths as well as anyone in the firm. There is a good chance he’ll direct both groups to focus back on the customer (which is what Google generally does) and that he’ll have little sense of humor for any continued unmet promises or misdirection coming from either.

In short, these recent organizational changes indicate something that should have likely happened a few years back and were too long in coming. But now that they’ve happened, they provide a stronger basis for a better outlook for Microsoft, Windows Visa, and Microsoft’s On-Line efforts. This also points strongly to the fact that excess complexity and nonsensical organizational Mash Ups are bad ideas that need to be reversed as quickly as possible.

Correcting this one took too long but now that it’s happened you should see the benefits out of Microsoft in a few short months.

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